UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, ~~2021~~2022


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission file number 001-36126

LGI HOMES, INC.

(Exact name of registrant as specified in its charter)

Delaware

46-3088013

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1450 Lake Robbins Drive,

Suite 430,

The Woodlands,

Texas

77380

(Address of principal executive offices)

(Zip code)

(281)

362-8998

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

LGIH

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April ~~30, 2021,~~29, 2022, there were ~~24,934,429~~23,666,284 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

Table of Contents

TABLE OF CONTENTS


		Page
PART I - FINANCIAL INFORMATION
Item 1.	LGI Homes, Inc. Consolidated Financial Statements (Unaudited)
	Consolidated Balance Sheets as of March 31, ~~2021~~2022 and December 31, ~~2020~~2021	4
	Consolidated Statements of Operations for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021	5
	Consolidated Statements of Equity for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021	6
	Consolidated Statements of Cash Flows for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021	7
	Notes to the Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3332
Item 4.	Controls and Procedures	3433

PART II - OTHER INFORMATION
Item 1A.	Risk Factors	3534
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
~~Item 5.~~	~~Other Information~~	3534
Item 6.	Exhibits	35

SIGNATURES		3736

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LGI HOMES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

March 31, December 31,
2021 2020
ASSETS
Cash and cash equivalents $ 48,157 $ 35,942
Accounts receivable 59,229 115,939
Real estate inventory 1,609,693 1,569,489
Pre-acquisition costs and deposits 39,488 37,213
Property and equipment, net 6,160 3,618
Other assets 47,391 44,882
Deferred tax assets, net 3,350 6,986
Goodwill 12,018 12,018
Total assets $ 1,825,486 $ 1,826,087
LIABILITIES AND EQUITY
Accounts payable $ 41,552 $ 13,676
Accrued expenses and other liabilities 151,348 135,008
Notes payable 413,948 538,398
Total liabilities 606,848 687,082
COMMITMENTS AND CONTINGENCIES 0 0
EQUITY
Common stock, par value $0.01, 250,000,000 shares authorized, 26,908,643 shares issued and 24,934,429 shares outstanding as of March 31, 2021 and 26,741,554 shares issued and 24,983,561 shares outstanding as of December 31, 2020 269 267
Additional paid-in capital 276,398 270,598
Retained earnings 1,033,935 934,277
Treasury stock, at cost, 1,974,214 shares and 1,757,993 shares, respectively (91,964) (66,137)
Total equity 1,218,638 1,139,005
Total liabilities and equity $ 1,825,486 $ 1,826,087


	March 31,		December 31,
	2022		2021
ASSETS
Cash and cash equivalents	$	53,325	$	50,514
Accounts receivable	48,489		57,909
Real estate inventory	2,335,570		2,085,904
Pre-acquisition costs and deposits	39,171		40,702
Property and equipment, net	19,420		16,944
Other assets	83,307		81,676
Deferred tax assets, net	2,933		6,198
Goodwill	12,018		12,018
Total assets	$	2,594,233	$	2,351,865

LIABILITIES AND EQUITY
Accounts payable	$	21,965	$	14,172
Accrued expenses and other liabilities	145,921		136,609
Notes payable	1,003,596		805,236
Total liabilities	1,171,482		956,017

COMMITMENTS AND CONTINGENCIES	0		0
EQUITY
Common stock, par value $0.01, 250,000,000 shares authorized, 27,187,895 shares issued and 23,666,284 shares outstanding as of March 31, 2022 and 26,963,915 shares issued and 23,917,359 shares outstanding as of December 31, 2021	271		269
Additional paid-in capital	297,451		291,577
Retained earnings	1,442,608		1,363,922
Treasury stock, at cost, 3,521,611 shares and 3,046,556 shares, respectively	(317,579)		(259,920)
Total equity	1,422,751		1,395,848
Total liabilities and equity	$	2,594,233	$	2,351,865

See accompanying notes to the consolidated financial statements.

Table of Contents

LGI HOMES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share data)


	Three Months Ended March 31,
		2022		2021
Home sales revenues		$	546,050	$	705,953

Cost of sales		387,643		516,004
Selling expenses		34,398		42,783
General and administrative		28,289		24,723
Operating income		95,720		122,443

Other income, net		(3,830)		(833)
Net income before income taxes		99,550		123,276
Income tax provision		20,864		23,618
Net income		$	78,686	$	99,658
Earnings per share:
Basic		$	3.30	$	3.99
Diluted		$	3.25	$	3.95

Weighted average shares outstanding:
Basic		23,837,170		24,950,867
Diluted		24,194,321		25,220,872

Three Months Ended March 31,
2021 2020
Home sales revenues $ 705,953 $ 454,727
Cost of sales 516,004 348,163
Selling expenses 42,783 32,763
General and administrative 24,723 19,923
Operating income 122,443 53,878
Other income, net (833) (1,011)
Net income before income taxes 123,276 54,889
Income tax provision 23,618 12,050
Net income $ 99,658 $ 42,839
Earnings per share:
Basic $ 3.99 $ 1.69
Diluted $ 3.95 $ 1.67
Weighted average shares outstanding:
Basic 24,950,867 25,323,119
Diluted 25,220,872 25,592,835

See accompanying notes to the consolidated financial statements.

Table of Contents

LGI HOMES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands, except share data)

Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Equity
Shares Amount
BALANCE—December 31, 2020 26,741,554 $ 267 $ 270,598 $ 934,277 $ (66,137) $ 1,139,005
Net income — — — 99,658 — 99,658
Restricted stock units granted for accrued annual bonuses — — 272 — — 272
Stock repurchase — — — — (25,827) (25,827)
Compensation expense for equity awards — — 3,422 — — 3,422
Stock issued under employee incentive plans 167,089 2 2,106 — — 2,108
BALANCE— March 31, 2021 26,908,643 $ 269 $ 276,398 $ 1,033,935 $ (91,964) $ 1,218,638


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock		Total Equity
	Shares	Amount
BALANCE—December 31, 2021	26,963,915	$	269	$	291,577	$	1,363,922	$	(259,920)	$	1,395,848
Net income	—	—		—		78,686		—		78,686
Restricted stock units granted for accrued annual bonuses	—	—		294		—		—		294
Stock repurchase	—	—		—		—		(57,659)		(57,659)
Compensation expense for equity awards	—	—		3,570		—		—		3,570
Stock issued under employee incentive plans	223,980	2		2,010		—		—		2,012
BALANCE— March 31, 2022	27,187,895	$	271	$	297,451	$	1,442,608	$	(317,579)	$	1,422,751

BALANCE—December 31, 2019 26,398,409 $ 264 $ 252,603 $ 610,382 $ (18,056) $ 845,193
Net income — — — 42,839 — 42,839
Restricted stock units granted for accrued annual bonuses — — 222 — — 222
Stock repurchase — — — — (31,335) (31,335)
Compensation expense for equity awards — — 1,853 — — 1,853
Stock issued under employee incentive plans 282,065 2 831 — — 833
BALANCE— March 31, 2020 26,680,474 $ 266 $ 255,509 $ 653,221 $ (49,391) $ 859,605


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock		Total Equity
	Shares	Amount
BALANCE—December 31, 2020	26,741,554	$	267	$	270,598	$	934,277	$	(66,137)	$	1,139,005
Net income	—	—		—		99,658		—		99,658
Restricted stock units granted for accrued annual bonuses	—	—		272		—		—		272
Stock repurchase	—	—		—		—		(25,827)		(25,827)
Compensation expense for equity awards	—	—		3,422		—		—		3,422
Stock issued under employee incentive plans	167,089	2		2,106		—		—		2,108
BALANCE— March 31, 2021	26,908,643	$	269	$	276,398	$	1,033,935	$	(91,964)	$	1,218,638

See accompanying notes to the consolidated financial statements.

Table of Contents

LGI HOMES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Three Months Ended March 31,
2021 2020
Cash flows from operating activities:
Net income $ 99,658 $ 42,839
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 288 161
Compensation expense for equity awards 3,422 1,853
Deferred income taxes 3,636 2,320
Changes in assets and liabilities:
Accounts receivable 56,710 11,385
Real estate inventory (41,692) 17,902
Pre-acquisition costs and deposits (2,276) (204)
Other assets (4,192) (2,953)
Accounts payable 27,876 6,571
Accrued expenses and other liabilities 17,256 (21,071)
Net cash provided by operating activities 160,686 58,803
Cash flows from investing activities:
Purchases of property and equipment (1,279) (417)
Return of capital from (investment in) unconsolidated entity 1,683 (1,125)
Net cash provided by (used in) investing activities 404 (1,542)
Cash flows from financing activities:
Proceeds from notes payable 104,844 128,128
Payments on notes payable (230,000) (75,000)
Proceeds from sale of stock, net of offering expenses 2,108 833
Stock repurchase (25,827) (31,335)
Net cash provided by (used in) financing activities (148,875) 22,626
Net increase in cash and cash equivalents 12,215 79,887
Cash and cash equivalents, beginning of period 35,942 38,345
Cash and cash equivalents, end of period $ 48,157 $ 118,232


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income	$	78,686	$	99,658
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in income of unconsolidated entities	(178)		—
Distributions of earnings from unconsolidated entities	129		—
Depreciation and amortization	348		288

Gain on disposal of assets	(1,564)		—
Compensation expense for equity awards	3,570		3,422
Deferred income taxes	3,264		3,636

Changes in assets and liabilities:
Accounts receivable	9,420		56,710
Real estate inventory	(251,612)		(41,692)
Pre-acquisition costs and deposits	1,531		(2,276)
Other assets	362		(4,192)
Accounts payable	7,793		27,876
Accrued expenses and other liabilities	10,464		17,256
Net cash provided by (used in) operating activities	(137,787)		160,686
Cash flows from investing activities:
Purchases of property and equipment	(993)		(1,279)
Investment in unconsolidated entities	(380)		(977)
Return of capital from unconsolidated entities	—		2,660

Net cash provided by (used in) investing activities	(1,373)		404
Cash flows from financing activities:
Proceeds from notes payable	197,617		104,844
Payments on notes payable	—		(230,000)


Proceeds from sale of stock, net of offering expenses	2,013		2,108
Stock repurchase	(57,659)		(25,827)


Net cash provided by (used in) financing activities	141,971		(148,875)
Net increase in cash and cash equivalents	2,811		12,215
Cash and cash equivalents, beginning of period	50,514		35,942
Cash and cash equivalents, end of period	$	53,325	$	48,157

See accompanying notes to the consolidated financial statements.

Table of Contents

LGI HOMES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization and Description of the Business

LGI Homes, Inc., a Delaware corporation (the “Company”, “we,” “us,” or “our”), is engaged in the development of communities and the design, construction and sale of new homes in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia, Virginia and Pennsylvania.

Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021. The accompanying unaudited consolidated financial statements include all adjustments that are of a normal recurring nature and necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full year.

The accompanying unaudited financial statements as of March 31, ~~2021,~~2022, and for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

~~2. REVENUES~~

~~Revenue Recognition~~Recent Accounting Pronouncements

~~Revenues from home sales are recognized when control~~In March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (“Topic 848”): Facilitation of the ~~promised goods~~Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or ~~services is transferred~~by another reference rate expected to ~~our customers, in an amount that reflects~~be discontinued because of reference rate reform. The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022. In January 2021, the ~~consideration we~~FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”), which clarified the scope and application of the original guidance. We expect to ~~be entitled to in exchange for those goods or services. Revenues from home sales are recorded at~~adopt ASU 2020-04 and ASU 2021-01 when the ~~time each home sale is closed, title and possession are transferred to~~Second Amendment (as defined herein) replaces LIBOR as the ~~customer and we have no significant continuing involvement~~benchmark interest rate with the ~~home. Home sales discounts and incentives granted~~Secured Overnight Financing Rate (“SOFR”). We do not expect the adoption of this guidance to ~~customers, which are related to the customers’ closing costs that we pay~~have a material impact on ~~the customers’ behalf~~, ~~are recorded as a reduction of revenue in~~ our consolidated financial statements ~~of operations.~~

~~The following table presents our home sales revenues disaggregated by revenue stream (in thousands):~~

Three Months Ended March 31,
2021 2020
Retail home sales revenues $ 643,572 $ 410,402
Wholesale home sales revenues 62,381 44,325
Total home sales revenues $ 705,953 $ 454,727

~~The following table presents our home sales revenues disaggregated by geography, based on our determined reportable segments in~~ ~~Note 13~~ ~~(in thousands):~~

~~Table of Contents~~

Three Months Ended March 31,
2021 2020
Central $ 288,750 $ 165,775
Southeast 136,551 88,447
Northwest 118,191 101,948
West 81,148 58,485
Florida 81,313 40,072
Total home sales revenues $ 705,953 $ 454,727

~~Home Sales Revenues~~

~~We generate revenues primarily by delivering move-in ready entry-level and move-up spec homes sold under our LGI Homes brand and our luxury series spec homes sold under our Terrata Homes brand.~~

Retail homes sold under both our LGI Homes brand and Terrata Homes brand focus on providing move-in ready homes with standardized features within favorable markets that meet certain demographic and economic conditions. Our LGI Homes brand primarily markets to entry-level or ~~first-time homebuyers, while our Terrata Homes brand primarily markets to move-up homebuyers.~~

Wholesale homes are primarily sold under a bulk sales agreement and focus on providing move-in ready homes with standardized features to real estate investors that will ultimately use the single-family homes as rental properties.

~~Performance Obligations~~

Our contracts with customers include a single performance obligation to transfer a completed home to the customer. We generally determine selling price per home on the expected cost plus margin. Our contracts contain no significant financing terms as customers who finance do so through a third party. Performance obligations are satisfied at a moment in time when the home is complete and control of the asset is transferred to the customer at closing. Home sales proceeds are generally received from the title company within a few business days after closing.

Sales and broker commissions are incremental costs incurred to obtain a contract with a customer that would not have been incurred if the contract had not been obtained. Sales and broker commissions are expensed upon fulfillment of a home closing. Advertising costs are costs to obtain a contract that would have been incurred regardless of whether the contract was obtained and are recognized as an expense when incurred. Sales and broker commissions and advertising costs are recorded within sales and marketing expense presented in our consolidated statements of operations as selling expenses.related disclosures.

3.2. REAL ESTATE INVENTORY

Our real estate inventory consists of the following (in thousands):


		March 31,		December 31,			March 31,		December 31,
		2021		2020			2022		2021
Land, land under development and finished lots	Land, land under development and finished lots	$	1,031,117	$	981,838	Land, land under development and finished lots	$	1,625,290	$	1,499,761
Information centers	Information centers	28,528		30,201		Information centers	30,449		28,665
Homes in progress	Homes in progress	425,585		337,364		Homes in progress	577,880		449,742
Completed homes	Completed homes	124,463		220,086		Completed homes	101,951		107,736
Total real estate inventory	Total real estate inventory	$	1,609,693	$	1,569,489	Total real estate inventory	$	2,335,570	$	2,085,904

Inventory is stated at cost unless the carrying amount is determined not to be recoverable, in which case the affected inventory is written down to fair value.

Table of Contents

Land, development and other project costs, including interest and property taxes incurred during development and home construction, net of expected reimbursable development costs, are capitalized to real estate inventory. Land development and other common costs that benefit the entire community, including field construction supervision and related direct overhead, are allocated to individual lots or homes, as appropriate. The costs of lots are transferred to homes in progress when home construction begins. Home construction costs and related carrying charges are allocated to the cost of individual homes using the specific identification method. Costs that are not specifically identifiable to a home are allocated on a pro rata basis, which we believe approximates the costs that would be determined using an allocation method based on relative sales values since the individual lots or homes within a community are similar in value. ~~Inventory costs for completed homes are expensed to cost of~~

~~Table of Contents~~

~~sales as homes are closed.~~ Changes to estimated total development costs subsequent to initial home closings in a community are generally allocated to the remaining unsold lots and homes in the community on a pro rata basis. Inventory costs for completed homes are expensed to cost of sales as homes are closed.

The life cycle of a community generally ranges from two to five years, commencing with the acquisition of land, continuing through the land development phase, and concluding with the construction and sale of homes. A constructed home is used as the community information center during the life of the community and then sold. Actual individual community lives will vary based on the size of the community, the sales absorption rate and whether the property was purchased as raw land or finished lots.

Interest and financing costs incurred under our debt obligations, as more fully discussed in Note 5 4, are capitalized to qualifying real estate projects under development and homes under construction.

During May and July of 2021, we acquired certain real estate assets owned by 2 private home builders and assumed certain related liabilities within the states of Minnesota and Texas for $67.0 million. These acquisitions are accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). As of March 31, 2022, our purchase accounting for these acquisitions is final.

4.3. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued and other liabilities consist of the following (in thousands):

March 31, December 31,
2021 2020
Taxes payable $ 45,604 $ 26,181
Real estate inventory development and construction payable 31,138 29,938
Accrued compensation, bonuses and benefits 18,680 28,579
Accrued interest 5,262 10,853
Inventory related obligations 3,872 4,515
Lease liability 5,249 5,287
Warranty reserve 5,950 5,350
Contract deposits 27,195 17,151
Other 8,398 7,154
Total accrued expenses and other liabilities $ 151,348 $ 135,008


	March 31,		December 31,
	2022		2021
Real estate inventory development and construction payable	$	54,122	$	48,656
Accrued compensation, bonuses and benefits	10,166		24,914
Taxes payable	28,918		11,604
Contract deposits	14,721		12,182
Accrued interest	4,047		7,431
Inventory related obligations	7,945		8,803
Warranty reserve	8,350		7,850
Lease liability	5,382		5,333
Other	12,270		9,836
Total accrued expenses and other liabilities	$	145,921	$	136,609

Inventory Related Obligations

We own lots in certain communities in Arizona, Florida and Texas that have Community Development Districts or similar utility and infrastructure development special assessment programs that allocate a fixed amount of debt service associated with development activities to each lot. This obligation for infrastructure development is attached to the land, which is typically payable over a 30-year period and is ultimately assumed by the homebuyer when home sales are closed. ~~Such~~The obligations assumed by the homebuyer represent a non-cash cost of the lots.

Table of Contents

Estimated Warranty Reserve

We typically provide homebuyers with a one-year warranty on the house and a ten-year limited warranty for major defects in structural elements such as framing components and foundation systems.

Changes to our warranty accrual are as follows (in thousands):

Three Months Ended March 31,
2021 2020
Warranty reserves, beginning of period $ 5,350 $ 3,500
Warranty provision 2,589 1,420
Warranty expenditures (1,989) (1,170)
Warranty reserves, end of period $ 5,950 $ 3,750


	Three Months Ended March 31,
		2022		2021
Warranty reserves, beginning of period		$	7,850	$	5,350
Warranty provision		2,465		2,589
Warranty expenditures		(1,965)		(1,989)
Warranty reserves, end of period		$	8,350	$	5,950

5.4. NOTES PAYABLE

Revolving Credit Agreement

On April 30, 2020, we entered into the Second Amendment to Fourth Amended and Restated Credit Agreement (the “Second Amendment”), which amends the Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended by the Lender Addition and Acknowledgement Agreement and First Amendment to Fourth Amended and Restated

~~Table of Contents~~

Credit Agreement, dated as of December 6, 2019, the “2019 Credit Agreement” and, together with the Second Amendment, the “2020 Credit Agreement”), with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent. In the Second Amendment, certain lenders agreed to extend the maturity of their commitments, while another lender agreed to extend the maturity of its commitment subsequent to the execution of the Second Amendment. Lenders with $566.0 million, or 87%, of the $650.0 million of commitments under the 2019 Credit Agreement agreed to extend the maturity of their commitments to May 31, 2023, with the remaining lenders retaining their existing maturity of May 31, 2022. The Second Amendment also reduced the minimum EBITDA to interest expense ratio from 2.50 to 1.75, increased the sublimit for letters of credit to $40.0 million and established a London Interbank Offered Rate (“LIBOR”) floor of 0.70%. The 2020 Credit Agreement otherwise has substantially similar terms and provisions to the 2019 Credit Agreement and continues to provide for a $650.0 million revolving credit facility, which can be increased at the request of the Company by up to $100.0 million, subject to the terms and conditions of the 2020 Credit Agreement.

The 2020 Credit Agreement matures on May 31, 2023 with respect to 87% of the commitments thereunder and on May 31, 2022 with respect to 13% of the commitments thereunder. Before each anniversary of the 2020 Credit Agreement, we may request a one-year extension of its maturity date. The 2020 Credit Agreement is guaranteed by each of our subsidiaries that have gross assets equal to or greater than $0.5 million. The borrowings and letters of credit outstanding under the 2020 Credit Agreement, together with the outstanding principal balance of our 6.875% Senior Notes due 2026 (the “Senior Notes”), may not exceed the borrowing base under the 2020 Credit Agreement. As of March 31, 2021, the borrowing base under the 2020 Credit Agreement was $949.3 million, of which borrowings, including the Senior Notes, of $421.5 million were outstanding, $10.3 million of letters of credit were outstanding and $517.5 million was available to borrow under the 2020 Credit Agreement.

Interest is paid monthly on borrowings under the 2020 Credit Agreement at LIBOR plus 2.35%. The 2020 Credit Agreement applicable margin for LIBOR loans ranges from 2.35% to 2.75% based on our leverage ratio. At March 31, 2021, LIBOR was 0.11%; however, the 2020 Credit Agreement has a 0.70% LIBOR floor.

The 2020 Credit Agreement contains various financial covenants, including a minimum tangible net worth, a leverage ratio, a minimum liquidity amount and an EBITDA to interest expense ratio. The 2020 Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments. At March 31, 2021, we were in compliance with all of the covenants contained in the 2020 Credit Agreement.

On April 28, 2021, we entered into that certain Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the ~~“Credit~~“2021 Credit Agreement”), which ~~amends~~amended and ~~restates the 2020 Credit Agreement. The~~restated that certain Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019. The 2021 Credit Agreement had revolving commitments of $850.0 million.

On April 29, 2022, we entered into that certain Lender Addition and Acknowledgement Agreement and Second Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Second Amendment”), which amends the 2021 Credit Agreement (as so amended and as otherwise amended prior to the date of the Second Amendment, the “Credit Agreement”). The Second Amendment, among other things, (a) increases the commitments under the 2021 Credit Agreement by an additional $250.0 million, bringing the total commitments under the Credit Agreement to ~~$850.0 million,~~$1.1 billion, and (b) ~~allows~~replaces LIBOR as the ~~Company to increase~~benchmark interest rate with SOFR.

Borrowings under the ~~commitments~~Credit Agreement will bear interest, payable monthly in arrears, at the Company’s option, at either (1) term SOFR (based on 1, 3 or 6 month interest periods, as selected by ~~up to $100.0 million,~~the Company) plus a 10, 15 or 25 basis point adjustment, respectively, which rate will be subject to ~~terms~~a 50 basis point floor, plus an applicable margin (ranging from 145 basis points to 210 basis points (the “Applicable Margin”)) based on the Company’s leverage ratio as determined in accordance with a pricing grid, and ~~conditions, (c) extends~~(2) term SOFR based on a 1 month interest period plus a 10 basis point adjustment, subject to a 50 basis point floor, plus the ~~maturity to~~Applicable Margin.

The Credit Agreement matures on April 28, ~~2025 for all lenders, (d) increases~~2025. Before each anniversary of the ~~sublimit for~~Credit Agreement, we may request a one-year extension of its maturity date. The Credit Agreement is guaranteed by, among others, each of our subsidiaries that have gross assets of at least $0.5 million.

The borrowings and letters of credit ~~to $50.0 million, (e) adds unrestricted cash in excess~~outstanding under the Credit Agreement, together with the outstanding principal balance of ~~$10.0 million as a component of~~our 4.000% Senior Notes due 2029 (the “2029 Senior Notes”), may not exceed the borrowing base under the Credit Agreement. The borrowing base primarily consists of a percentage of commercial land, land held for development, lots under development and ~~removes certain exclusions from~~finished lots held by the Company and its subsidiaries that guarantee the obligations under the Credit Agreement. As of March 31, 2022, the borrowing base ~~(f) reduces~~under the 2021 Credit Agreement was $1.1 billion, of which borrowings, including the 2029 Senior Notes, of $1.0 billion were outstanding, $25.0 million of letters of credit were outstanding and $108.3 million was available to borrow under the 2021 Credit Agreement.

Prior to the Second Amendment, interest was paid monthly on borrowings under the 2021 Credit Agreement at LIBOR plus 1.60%. Prior to the Second Amendment, the 2021 Credit Agreement applicable margin for LIBOR loans ranged from 1.45% to ~~a range of~~ 2.10% ~~to 1.45%,~~ based on our leverage ~~ratio, (g) reduces~~ratio. At March 31, 2022, LIBOR was 0.40%; however, the 2021 Credit Agreement has a 0.50% LIBOR ~~floor to 0.50%, (h) increases the~~floor.

The Credit Agreement contains various financial covenants, including a minimum tangible net worth, ~~requirement~~a leverage ratio, a minimum liquidity amount and an EBITDA to ~~$850.0 million plus 75%~~interest expense ratio. The Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments. At March 31, 2022, we were in compliance with all of the ~~net proceeds~~covenants contained in the 2021 Credit Agreement.

Table of equity issuances after December 31, 2020 and 50% of consolidated earnings for each quarter ending after March 31, 2021 and (i) provides for a “hardwired” transition from LIBOR loan pricing that is intended to be economically neutral to the Company; otherwise, the Credit Agreement is on substantially the same terms as the 2020 Credit Agreement.Contents

Senior Notes Offering

On ~~July 6, 2018,~~June 28, 2021, we issued $300.0 million aggregate principal amount of the 2029 Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S under the Securities Act. Interest on the 2029 Senior Notes accrues at a rate of ~~6.875%~~4.000% per annum, payable semi-annually in arrears on January 15 and July 15 of each ~~year, commencing on January 15, 2019, and the~~year. The 2029 Senior Notes mature on July 15, ~~2026.~~2029. Terms of the 2029 Senior Notes are governed by an Indenture, ~~and First Supplemental Indenture thereto, each~~ dated as of July 6, 2018, and ~~a Second~~Third Supplemental Indenture thereto, dated as of ~~April 30, 2020,~~June 28, 2021, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the ~~2020~~ Credit Agreement and Wilmington Trust, National Association, as trustee.

~~Table of Contents~~

Notes payable consist of the following (in thousands):

March 31, 2021 December 31, 2020
Notes payable under the 2020 Credit Agreement ($650.0 million revolving credit facility at March 31, 2021) maturing in part on May 31, 2022 and in part on May 31, 2023; interest paid monthly at LIBOR plus 2.35%; net of debt issuance costs of approximately $4.4 million and $4.9 million at March 31, 2021 and December 31, 2020, respectively $ 117,107 $ 241,717
6.875% Senior Notes due July 15, 2026; interest paid semi-annually at 6.875%; net of debt issuance costs of approximately $1.8 million and $1.9 million at March 31, 2021 and December 31, 2020, respectively; and approximately $1.4 million in unamortized discount at March 31, 2021 and December 31, 2020. 296,841 296,681
Total notes payable $ 413,948 $ 538,398


	March 31, 2022		December 31, 2021
Notes payable under the 2021 Credit Agreement ($850.0 million revolving credit facility at March 31, 2022) maturing on April 28, 2025; interest paid monthly at LIBOR plus 1.60%.	$	715,057	$	517,439
4.000% Senior Notes due July 15, 2029; interest paid semi-annually at 4.000%.	300,000		300,000
Net debt issuance costs	(11,461)		(12,203)
Total notes payable	$	1,003,596	$	805,236

Capitalized Interest

Interest activity, including other financing costs, for notes payable for the periods presented is as follows (in thousands):

Three Months Ended March 31,
2021 2020
Interest incurred $ 7,732 $ 10,156
Less: Amounts capitalized (7,732) (10,156)
Interest expense $ 0 $ 0
Cash paid for interest $ 12,633 $ 15,024


	Three Months Ended March 31,
		2022		2021
Interest incurred		$	7,027	$	7,732
Less: Amounts capitalized		(7,027)		(7,732)
Interest expense		$	—	$	—

Cash paid for interest		$	9,668	$	12,633

Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $0.7 million for each of the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021.

6.5. INCOME TAXES

We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The statute of limitations with regards to our federal income tax filings is three years. The statute of limitations for our state tax jurisdictions is three to four years depending on the jurisdiction. In the normal course of business, we are subject to tax audits in various jurisdictions, and such jurisdictions may assess additional income taxes. We do not expect the outcome of any audit to have a material effect on our consolidated financial statements; however, audit outcomes and the timing of audit adjustments are subject to significant uncertainty.

For the three months ended March 31, ~~2021,~~2022, our effective tax rate of ~~19.2%~~21.0% is ~~lower than~~equal to the Federal statutory rate primarily as a result of the ~~extension~~deductions in excess of ~~the federal energy efficient homes tax credit that was enacted into law in December 2019 and excess~~ compensation cost for share-based payments, ~~partially~~ offset by an increase in the rate for the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and for state income taxes, net of the federal benefit payments.

Income taxes paid were ~~$0.2~~$0.4 million and ~~$18.4~~$0.2 million for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

7.6. EQUITY

Stock Repurchase Program

Table of Contents

stock. During the three months ended March 31, 2021, ~~and 2020,~~ we repurchased 216,221 ~~and 567,028~~ shares of our common stock for $25.8 million ~~and $31.3 million, respectively,~~ to be held as treasury stock. A total of ~~757,993~~2,521,611 shares of our common stock has been repurchased since our stock repurchase program commenced. As of March 31, ~~2021,~~2022, we may purchase up to ~~$274.6~~$249.0 million of shares of our common stock under our stock repurchase program. The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements. Our stock repurchase program may be modified, discontinued or suspended at any time.

~~Table of Contents~~

8.7. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, ~~2021~~2022 and ~~2020:~~

Three Months Ended March 31,
2021 2020
Numerator (in thousands):
Net income (Numerator for basic and dilutive earnings per share) $ 99,658 $ 42,839
Denominator:
       Basic weighted average shares outstanding 24,950,867 25,323,119
       Effect of dilutive securities:
         Stock-based compensation units 270,005 269,716
       Diluted weighted average shares outstanding 25,220,872 25,592,835
Basic earnings per share $ 3.99 $ 1.69
Diluted earnings per share $ 3.95 $ 1.67
Antidilutive non-vested restricted stock units excluded from calculation of diluted earnings per share 21,510 26,893

2021:


	Three Months Ended March 31,
		2022		2021
Numerator (in thousands):
Net income (Numerator for basic and dilutive earnings per share)		$	78,686	$	99,658
Denominator:
Basic weighted average shares outstanding		23,837,170		24,950,867
Effect of dilutive securities:
Stock-based compensation units		357,151		270,005
Diluted weighted average shares outstanding		24,194,321		25,220,872

Basic earnings per share		$	3.30	$	3.99
Diluted earnings per share		$	3.25	$	3.95
Antidilutive non-vested restricted stock units excluded from calculation of diluted earnings per share		27,001		21,510

9.8. STOCK-BASED COMPENSATION

Non-performance Based Restricted Stock Units

The following table summarizes the activity of our time-vested restricted stock units (“RSUs”):


		Three Months Ended March 31,							Three Months Ended March 31,
		2021			2020				2022			2021
		Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value			Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value
Beginning balance	Beginning balance	142,738	$	62.54	162,686	$	50.84	Beginning balance	117,874	$	80.85	142,738	$	62.54
Granted	Granted	23,366	$	141.00	46,701	$	59.81	Granted	36,675	$	118.80	23,366	$	141.00
Vested	Vested	(30,407)	$	64.44	(51,531)	$	31.95	Vested	(38,791)	$	56.49	(30,407)	$	64.44
Forfeited	Forfeited	(1,627)	$	61.58	(982)	$	51.03	Forfeited	(1,151)	$	87.20	(1,627)	$	61.58
Ending balance	Ending balance	134,070	$	75.79	156,874	$	59.71	Ending balance	114,607	$	101.18	134,070	$	75.79

We recognized $0.8 million of stock-based compensation expense related to outstanding RSUs for each of the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021. Generally, the RSUs cliff vest on the third anniversary of the grant date and can only be settled in shares of our common stock. At March 31, ~~2021,~~2022, we had unrecognized compensation cost of ~~$6.2~~$7.4 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.2 years.

Table of Contents

Performance-Based Restricted Stock Units

The Compensation Committee of the Board has granted awards of performance-based RSUs (“PSUs”) under the Amended and Restated LGI Homes, Inc. 2013 Equity Incentive Plan to certain members of senior management based on three-year performance cycles. The PSUs provide for shares of our common stock to be issued based on the attainment of certain performance metrics over the applicable three-year periods. The number of shares of our common stock that may be issued to the recipients for the PSUs range from 0% to 200% of the target amount depending on actual results as compared to the target performance metrics. The terms of the PSUs provide that the payouts will be capped at 100% of the target number of PSUs granted if absolute total stockholder return is negative during the performance period, regardless of EPS performance; this

~~Table of Contents~~

market condition applies for amounts recorded above target. The compensation expense associated with the PSU grants is determined using the derived grant date fair value, based on a third-party valuation analysis, and expensed over the applicable period. The PSUs vest upon the determination date for the actual results at the end of the three-year period and require that the recipients continue to be employed by us through the determination date. The PSUs can only be settled in shares of our common stock.

The following table summarizes the activity of our PSUs for the three months ended March 31, ~~2021:~~

Period Granted Performance Period Target PSUs Outstanding at December 31, 2020 Target PSUs Granted Target PSUs Vested Target PSUs Forfeited Target PSUs Outstanding at March 31, 2020 Weighted Average Grant Date Fair Value
2018 2018 - 2020 60,040 — (60,040) — 0 $ 64.60
2019 2019 - 2021 81,242 — — — 81,242 $ 56.49
2020 2020 - 2022 88,538 — — — 88,538 $ 59.81
2021 2021 - 2023 — 46,027 — — 46,027 $ 141.00
Total 229,820 46,027 (60,040) 0 215,807
2022:


Period Granted	Performance Period	Target PSUs Outstanding at December 31, 2021	Target PSUs Granted	Target PSUs Forfeited	Target PSUs Vested	Target PSUs Outstanding at March 31, 2022	Weighted Average Grant Date Fair Value
2019	2019 - 2021	81,242	—	(767)	(80,475)	—	$	56.49
2020	2020 - 2022	88,538	—	(1,494)	—	87,044	$	59.81
2021	2021 - 2023	46,027	—	—	—	46,027	$	141.00
2022	2022 - 2024	—	66,909	—	—	66,909	$	118.80
Total		215,807	66,909	(2,261)	(80,475)	199,980

At March 31, ~~2021,~~2022, management estimates that the recipients will receive approximately 100%, 200% and 200% of the 2022, 2021 ~~2020~~ and ~~2019~~2020 target number of PSUs, respectively, at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics. We recognized ~~$2.2~~$2.3 million and ~~$0.9~~$2.2 million of total stock-based compensation expense related to outstanding PSUs for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~2018~~2019 - ~~2020~~2021 performance period PSUs vested and issued on March 15, ~~2021~~2022 at 200% of the target number. At March 31, ~~2021,~~2022, we had unrecognized compensation cost of ~~$16.6~~$17.6 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of ~~2.1~~2.3 years.

~~10.~~9. FAIR VALUE DISCLOSURES

ASC Topic 820, Fair Value Measurements (“ASC 820”), defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any. The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous. Accordingly, this exit price concept may result in a fair value that differs from the transaction price or market price of the asset or liability.

ASC 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:

Level 1 - Fair value is based on quoted prices in active markets for identical assets or liabilities.

Level 2 - Fair value is determined using significant observable inputs, generally either quoted prices in active markets for

similar assets or liabilities, or quoted prices in markets that are not active.

Level 3 - Fair value is determined using one or more significant inputs that are unobservable in active markets at the

measurement date, such as a pricing model, discounted cash flow or similar technique.

We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements may also be utilized on a nonrecurring basis, such as for the impairment of long-lived assets. The fair value of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and certain accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments. As of March 31, 2022, the 2021 ~~the~~ Credit Agreement’s carrying value approximates market value since it has a floating interest rate, which increases or decreases with market interest rates and our leverage ratio.

Table of Contents

In order to determine the fair value of the 2029 Senior Notes, the future contractual cash flows are discounted at our estimate of current market rates of interest, which were determined based upon the average interest rates of similar senior notes within the homebuilding industry (Level 2 measurement).

~~Table of Contents~~

The following table below shows the level and measurement of liabilities at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 (in thousands):

March 31, 2021 December 31, 2020
Fair Value Hierarchy Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value
Senior Notes Level 2 $ 296,841 $ 338,080 $ 296,681 $ 340,388


		March 31, 2022				December 31, 2021
	Fair Value Hierarchy	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
2029 Senior Notes (1)	Level 2	$	300,000	$	269,352	$	300,000	$	299,302

(1)See Note 4 for more details regarding the offering of the 2029 Senior Notes.

~~11.~~10. RELATED PARTY TRANSACTIONS

Land Purchases from Affiliates

As of March 31, 2021, we have a land purchase contract to purchase a total of 110 finished lots in Pasco County, Florida from an affiliate of one of our directors for a total base purchase price of approximately $4.0 million. The lots will be purchased in takedowns, subject to a maximum price escalation of 6% per annum, and may provide for additional payments to the seller at the time of sale to the homebuyer. We have a $0.2 million non-refundable deposit at March 31, 2021 related to this land purchase contract. In August 2019, we purchased our first takedown of 58 lots under the Pasco County contract for a base purchase price of approximately $2.1 million. We did not enter into or complete any ~~takedowns under this~~ land purchase ~~contract~~contracts with affiliates during the three months ended March 31, ~~2021 and 2020.~~2022.

As of March 31, 2021, we ~~have~~had a land purchase contract to purchase a total of 25 finished lots in Burnet County, Texas from an affiliate of a family member of our chief executive officer for a total base purchase price of approximately $2.5 million. Additionally, we had a land purchase contract to purchase a total of 110 finished lots in Pasco County, Florida from an affiliate of one of our directors for a total base purchase price of approximately $4.0 million. As of December 31, 2021, we completed both the land purchase contracts in Burnet County and Pasco County.

~~12.~~11. COMMITMENTS AND CONTINGENCIES

Contingencies

In the ordinary course of doing business, we are subject to claims or proceedings from time to time relating to the purchase, development and sale of real estate and homes and other aspects of our homebuilding operations. Management believes that these claims include usual obligations incurred by real estate developers and residential home builders in the normal course of business. In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.

We have provided unsecured environmental indemnities to certain lenders and other counterparties. In each case, we have performed due diligence on the potential environmental risks including obtaining an independent environmental review from outside environmental consultants. These indemnities obligate us to reimburse the guaranteed parties for damages related to environmental matters. There is no term or damage limitation on these indemnities; however, if an environmental matter arises, we may have recourse against other previous owners. In the ordinary course of doing business, we are subject to regulatory proceedings from time to time related to environmental and other matters. In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.

Land Deposits

We have land purchase contracts, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property, and obligations with respect to the land purchase contracts are generally limited to the forfeiture of the related nonrefundable cash deposits. The following is a summary of our land purchase deposits included in pre-acquisition costs and deposits (in thousands, except for lot count):


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Land deposits and option payments	Land deposits and option payments	$	35,484	$	34,097	Land deposits and option payments	$	34,905	$	37,499
Commitments under the land purchase contracts if the purchases are consummated	Commitments under the land purchase contracts if the purchases are consummated	$	728,140	$	663,006	Commitments under the land purchase contracts if the purchases are consummated	$	837,001	$	921,345
Lots under land purchase contracts	Lots under land purchase contracts	28,784		26,236		Lots under land purchase contracts	34,191		36,978

As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, approximately ~~$25.1~~$19.4 million and ~~$24.0~~$19.3 million, respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages or letters of credit or guaranteed by the seller or its affiliates.

1514

Table of Contents

Lease Obligations

We recognize lease obligations and associated right-of-use (“ROU”) assets for our existing non-cancelable leases. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We have non-cancelable operating leases primarily associated with our corporate and regional office facilities. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets, as included in other assets on the consolidated balance sheets, were ~~$4.9~~$5.1 million as of each of March 31, ~~2021~~2022 and December 31, ~~2020.~~2021. Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were ~~$5.2~~$5.4 million and $5.3 million at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $0.5 million and $0.4 million for the three months ended March 31, 2022 and 2021, ~~and 2020.~~respectively. Cash paid for amounts included in the measurement of lease liabilities for operating leases during the three months ended March 31, 2022 and 2021 ~~and 2020~~ was ~~$0.2~~$0.4 million and ~~$0.4~~$0.2 million, respectively. As of March 31, ~~2021,~~2022, the weighted-average discount rate was ~~5.24%~~5.2% and our weighted-average remaining life was ~~4.8~~3.1 years. We do not have any significant lease contracts that have not yet commenced at March 31, ~~2021.~~2022.

The table below shows the future minimum payments under non-cancelable operating leases at March 31, ~~2021~~2022 (in thousands):

Year Ending December 31, Operating leases
2021 $ 997
2022 1,138
2023 1,007
2024 776
2025 517
Thereafter 1,762
Total 6,197
Lease amount representing interest (948)
Present value of lease liabilities $ 5,249


Year Ending December 31,	Operating leases
2022	1,133
2023	1,335
2024	1,067
2025	884
2026	776
Thereafter	1,054
Total	6,249
Lease amount representing interest	(867)
Present value of lease liabilities	$	5,382

Bonding and Letters of Credit

We have outstanding letters of credit and performance and surety bonds totaling ~~$167.6~~$268.8 million (including ~~$10.3~~$25.0 million of letters of credit issued under the 2021 Credit Agreement) and ~~$143.8~~$206.8 million at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, related to our obligations for site improvements at various projects. Management does not believe that draws upon the letters of credit, surety bonds or financial guarantees if any, will have a material effect on our consolidated financial position, results of operations or cash flows.

Investment in Unconsolidated ~~Entity~~Entities

In 2019, we ~~became~~entered as a limited partner ininto a real estate investment fund with a maximum $30.0 million commitment. The term of the commitment is eight years and includes renewals of up to two additional years. Additionally, in 2021, we entered into a joint venture with a mortgage lender. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, we have a total of ~~$2.2~~$6.0 million and ~~$3.9~~$5.6 million, respectively, within other assets on the balance ~~sheet.~~sheet relating to our investment in this real estate investment fund and this mortgage joint venture. Contributions into the unconsolidated ~~entity~~entities are for the use of investing in certain real estate ~~transactions.~~transactions and residential mortgage services, respectively.

12. REVENUES

Home Sales Revenues

We generate revenues primarily by delivering move-in ready entry-level and move-up spec homes sold under our LGI Homes brand and our luxury series spec homes sold under our Terrata Homes brand.

Table of Contents

The following table presents our home sales revenues disaggregated by revenue stream (in thousands):


	Three Months Ended March 31,
		2022		2021
Retail home sales revenues		$	494,206	$	643,572
Wholesale home sales revenues		51,844		62,381
Total home sales revenues		$	546,050	$	705,953

Our home sales revenues are disaggregated by geography, based on our determined reportable segments. See Note 13 for tabular presentation of this information.

13. SEGMENT INFORMATION

We operate one principal homebuilding business that is organized and reports by division. We have 7 operating segments (our Central, Midwest, Southeast, Mid-Atlantic, Northwest, West, and Florida divisions) that we aggregate into 5 qualifying reportable segments at March 31, ~~2021:~~2022: our Central, Southeast, Northwest, West, and Florida divisions. These segments reflect the way the Company evaluates its business performance and manages its operations. ~~The Central division is our largest division and comprised approximately 40.9% and 36.5% of total home sales revenues for the three months ended March 31, 2021 and 2020, respectively.~~

~~Table of Contents~~

In accordance with ASC ~~Topic~~ 280, Segment Reporting, operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision-makers (“CODMs”) in deciding how to allocate resources and in assessing performance. The CODMs primarily evaluate performance based on the number of homes closed, gross margin and average sales price per home closed.

~~The 7 operating segments qualify as our 5 reportable segments.~~ In determining the most appropriate reportable segments, we consider operating segments’ economic and other characteristics, including home floor plans, average selling prices, gross margin percentage, geographical proximity, production construction processes, suppliers, subcontractors, regulatory environments, customer type and underlying demand and supply. Each operating segment follows the same accounting policies and is managed by our management team. We have 0no inter-segment sales, as all sales are to external customers. Operating results for each segment may not be indicative of the results for such segment had it been an independent, stand-alone entity for the periods presented.

Financial information relating to our reportable segments was as follows (in thousands):

Three Months Ended March 31,
2021 2020
Revenues:
Central $ 288,750 $ 165,775
Southeast 136,551 88,447
Northwest 118,191 101,948
West 81,148 58,485
Florida 81,313 40,072
Total home sales revenues $ 705,953 $ 454,727
Net income (loss) before income taxes:
Central $ 55,634 $ 24,234
Southeast 19,831 7,908
Northwest 25,994 16,527
West 12,611 5,272
Florida 10,816 2,525
Corporate (1)
(1,610) (1,577)
Total net income before income taxes $ 123,276 $ 54,889


	Three Months Ended March 31,
		2022		2021
Revenues:
Central		$	262,298	$	288,750
Southeast		72,463		136,551
Northwest		102,874		118,191
West		55,583		81,148
Florida		52,832		81,313
Total home sales revenues		$	546,050	$	705,953

Net income (loss) before income taxes:
Central		$	57,740	$	55,634
Southeast		10,129		19,831
Northwest		27,584		25,994
West		(231)		12,611
Florida		5,360		10,816
Corporate (1)		(1,032)		(1,610)
Total net income before income taxes		$	99,550	$	123,276

(1)The Corporate balance consists primarily of general and administration unallocated costs for various shared service functions, as well as our warranty reserve. Actual warranty expenses are reflected within the reportable segments.

March 31, 2021 December 31, 2020
Assets:
Central $ 679,525 $ 708,087
Southeast 381,246 401,725
Northwest 251,325 252,098
West 264,832 228,186
Florida 157,561 157,169
Corporate (1)
90,997 78,822
Total assets $ 1,825,486 $ 1,826,087

Table of Contents


	March 31, 2022		December 31, 2021
Assets:
Central	$	894,491	$	857,174
Southeast	501,937		438,423
Northwest	402,697		349,752
West	460,402		384,548
Florida	236,118		221,763
Corporate (1)	98,588		100,205
Total assets	$	2,594,233	$	2,351,865

(1)The Corporate balance consists primarily of cash, prepaid insurance, ROU assets, prepaid expenses, investments in unconsolidated entities and ~~income~~ tax ~~receivables related to the federal energy efficient homes tax credit.~~

~~14. SUBSEQUENT EVENT~~

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operation, references to “we,” “our,” “us” or similar terms refer to LGI Homes, Inc. and its subsidiaries.

Business Overview

We are engaged in the design, construction and sale of new homes in the following markets:

West

Northwest

Central

Midwest

Florida

Southeast

Mid-Atlantic

Phoenix, AZ

Seattle, WA

Houston, TX

Minneapolis, MN

Tampa, FL

Atlanta, GA

Washington, D.C.

Tucson, AZ

Portland, OR

Dallas Ft. Worth, TX

Orlando, FL

Charlotte, NC

~~Richmond,~~Norfolk, VA

Albuquerque, NM

Denver, CO

San Antonio, TX

Fort Myers, FL

Raleigh, NC

~~Baltimore, MD~~Richmond, VA

Las Vegas, NV

Austin, TX

Jacksonville, FL

Wilmington, NC

Baltimore, MD

Northern CA

Oklahoma City, OK

Fort Pierce, FL

Winston-Salem, NC

Southern CA

Daytona Beach, FL

Columbia, SC

Sarasota, FL

Greenville, SC

Birmingham, AL

Nashville, TN

Our management team has been in the residential land development business since the mid-1990s. Since commencing home building operations in 2003, we have constructed and closed over ~~45,000~~50,000 homes. During the three months ended March 31, ~~2021,~~2022, we had ~~2,561~~1,599 home closings, compared to ~~1,835~~2,561 home closings during the three months ended March 31, ~~2020.~~2021.

~~We sell homes under the LGI Homes and~~At March 31, 2022, we had 88 active communities, including seven Terrata Homes ~~brands. Our~~communities. At March 31, 2021, we had 110 active communities, ~~at March 31, 2021 included~~including two Terrata Homes communities.

During the three months ended March 31, 2022, we recorded $51.8 million in wholesale revenues as a result of 213 home closings, representing 13.3% of the total homes closed during the three months ended March 31, 2022. During the three months ended March 31, 2021, we recorded $62.4 million in wholesale revenues as a result of 283 home closings, representing 11.1% of the total homes closed during the three months ended March 31, 2021. During the three months ended March 31, 2020, we recorded $44.3 million in wholesale revenues as a result of 199 home closings, representing 10.8% of the total homes closed during the three months ended March 31, 2020. We believe our wholesale home closings provide opportunities for us to leverage our systems and processes to meet the needs of companies looking to acquire multiple homes for rental purposes, primarily through bulk sales agreements.

~~COVID-19~~

Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, consumer confidence, housing demand, availability of financing for home buyers, availability and prices of new homes compared to existing inventory, and demographic trends. These factors, and in particular consumer confidence, can be significantly adversely affected by a variety of factors beyond our control. The outbreak and spread of COVID-19 ~~has~~and variants thereof (hereinafter collectively referred to as “COVID-19”) and resulting containment efforts by governmental, regulatory and health agencies caused significant disruptions in the global economy, including tightened supply chains, raw material price volatility ~~in U.S.~~ and ~~international debt~~significant cost inflation. During the three months ended March 31, 2022, we continued to experience significant supply chain disruptions that extended construction and ~~equity markets, which can negatively impact consumer confidence.~~

~~In response to COVID-19,~~development cycles and delayed home closings and the opening of new communities. While we continue to ~~take steps~~carefully manage our supply chain to prioritize the health and safety of our employees, customers, subcontractors and suppliers, including expanded safety policies and practices based on Center for Disease Control guidelines to reduce the spread of COVID-19.

~~As a homebuilder and developer, we provide an important service~~limit impacts to our ~~customers.~~ business and customers, we believe these COVID-19 related global shortages will continue to impact our operations as long as the dynamics surrounding the pandemic persist. We also believe that the desire for our single-family homes remains strong.

During the ~~COVID-19 outbreak, our main focus beyond the health and safety mentioned above is~~three months ended March 31, 2022, we closed 1,599 homes compared to ~~continue our efforts to sell~~2,561 homes ~~and complete our homes under construction.~~

~~We cannot predict the full impact that the significant disruption and volatility currently being experienced~~closed in the ~~markets~~same period last year. The first quarter of 2021 was one of the strongest in our history during which we set new Company records with respect to a number of financial metrics. Thedecline in home closings was attributable to longer lead times relating to labor, materials and municipality activities that increased our construction and development cycle times and negatively impacted the timing of closings. We expect continued cost inflation, building material shortages and longer municipality lead times will ~~have on our business, cash flows, liquidity, financial condition~~persist until demand for new homes normalizes and ~~results~~global supply chain constraints ease.

Table of ~~operations at this time, due to numerous uncertainties.~~ Contents

For additional discussion regarding our operations and COVID-19, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of our Annual Report on Form 10-K for the fiscal year ended

~~Table of Contents~~

December 31, 2020. The ultimate impacts of COVID-19 and related mitigation efforts will depend on future developments, including, but not limited to, the duration and geographic spread of COVID-19, the emergence of more infectious strains of the virus, the impact of government actions designed to prevent the spread of COVID-19 or the decrease in such actions, the availability and timely distribution of, and willingness to accept, effective treatments and vaccines, actions taken by customers, subcontractors, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.2021. For additional discussion regarding risks associated with the COVID-19 pandemic, see Item 1A. Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. While we expect COVID-19 to continue to influence our future results, we believe that the desire for single-family homes outside of densely populated urban areas combined with historically low mortgage rates and low availability of existing homes is driving an increase in demand for new homes.2021.

Recent Developments

~~During the three months ended March 31, 2021, we purchased 216,221 shares of our common stock for $25.8 million under our previously announced stock repurchase program.~~

~~In March 2021, we entered into a joint venture with loanDepot.com, LLC to offer mortgage services within markets we operate.~~

On April ~~28, 2021, we entered into~~29, 2022, amounts available to the Company under the Credit Agreement (as defined herein)~~, which amends and restates~~ were increased by $250.0 million to $1.1 billion, in accordance with the ~~2020 Credit Agreement. The Credit Agreement (a) increases the commitments to $850.0 million, (b) allows the Company to increase the commitments by up to $100.0 million, subject to~~ terms and conditions ~~(c) extends the maturity to April 28, 2025 for all lenders, (d) increases the sublimit for letters of credit to $50.0 million, (e) adds unrestricted cash in excess of $10.0 million as a component~~ of the borrowing base and removes certain exclusions from the borrowing base, (f) reduces the applicable margin for LIBOR loans to a range of 2.10% to 1.45%, based on our leverage ratio, (g) reduces the LIBOR floor to 0.50%, (h) increases the minimum tangible net worth requirement to $850.0 million plus 75% of the net proceeds of equity issuances after December 31, 2020 and 50% of consolidated earnings for each quarter ending after March 31, 2021 and (i) provides for a “hardwired” transition from LIBOR loan pricing that is intended to be economically neutral to the Company; otherwise, the Credit Agreement is on substantially the same terms as the 2020 Credit Agreement.Second Amendment (as defined herein).

Key Results

Key financial results as of and for the three months ended March 31, ~~2021,~~2022, as compared to the three months ended March 31, ~~2020,~~2021, were as follows:

•Home sales revenues ~~increased 55.2%~~decreased 22.7% to ~~$706.0~~$546.1 million from ~~$454.7~~$706.0 million.

•Homes closed ~~increased 39.6%~~decreased 37.6% to ~~2,561~~1,599 homes from ~~1,835~~2,561 homes.

•Average sales price per home closed increased ~~11.2%~~23.9% to ~~$275,655~~$341,495 from ~~$247,808.~~$275,655.

•Gross margin as a percentage of home sales revenues increased to ~~26.9%~~29.0% from ~~23.4%~~26.9%.

•Adjusted gross margin (non-GAAP) as a percentage of home sales revenues increased to ~~28.5%~~30.3% from ~~25.5%~~28.5%.

•Net income before income taxes ~~increased 124.6%~~decreased 19.2% to ~~$123.3~~$99.6 million from ~~$54.9~~$123.3 million.

•Net income ~~increased 132.6%~~decreased 21.0% to ~~$99.7~~$78.7 million from ~~$42.8~~$99.7 million.

•EBITDA (non-GAAP) as a percentage of home sales revenues increased to ~~19.0%~~19.1% from ~~14.1%~~19.0%.

•Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues ~~increased~~decreased to ~~19.0%~~18.8% from ~~14.0%~~19.0%.

•~~Total owned and controlled lots increased 9.4% to 67,286 lots at March 31, 2021 from 61,504 lots at December 31, 2020.~~

For reconciliations of the non-GAAP financial measures of adjusted gross margin, EBITDA and adjusted EBITDA to the most directly comparable GAAP financial measures, please see “—Non-GAAP Measures.”

We owned and controlled 93,270 lots at March 31, 2022 and 91,845 lots at December 31, 2021.

Table of Contents

Results of Operations

The following table sets forth our results of operations for the three months ended March 31, ~~2021~~2022 and ~~2020:~~ 2021:


		Three Months Ended March 31,									Three Months Ended March 31,
				2021			2020						2022			2021
			(dollars in thousands, except per share data and average home sales price)									(dollars in thousands, except per share data and average home sales price)
Statement of Income Data:	Statement of Income Data:									Statement of Income Data:
Home sales revenues	Home sales revenues			$	705,953		$	454,727		Home sales revenues			$	546,050		$	705,953
Expenses:	Expenses:									Expenses:
Cost of sales	Cost of sales			516,004			348,163			Cost of sales			387,643			516,004
Selling expenses	Selling expenses			42,783			32,763			Selling expenses			34,398			42,783
General and administrative	General and administrative			24,723			19,923			General and administrative			28,289			24,723
Operating income	Operating income			122,443			53,878			Operating income			95,720			122,443

Other income, net	Other income, net			(833)			(1,011)			Other income, net			(3,830)			(833)
Net income before income taxes	Net income before income taxes			123,276			54,889			Net income before income taxes			99,550			123,276
Income tax provision	Income tax provision			23,618			12,050			Income tax provision			20,864			23,618
Net income	Net income			$	99,658		$	42,839		Net income			$	78,686		$	99,658
Basic earnings per share	Basic earnings per share			$	3.99		$	1.69		Basic earnings per share			$	3.30		$	3.99
Diluted earnings per share	Diluted earnings per share			$	3.95		$	1.67		Diluted earnings per share			$	3.25		$	3.95
Other Financial and Operating Data:	Other Financial and Operating Data:									Other Financial and Operating Data:
Average community count	Average community count			106.3			108.7			Average community count			89.0			106.3
Community count at end of period	Community count at end of period			110			113			Community count at end of period			88			110
Home closings	Home closings			2,561			1,835			Home closings			1,599			2,561
Average sales price per home closed	Average sales price per home closed			$	275,655		$	247,808		Average sales price per home closed			$	341,495		$	275,655
Gross margin (1)	Gross margin (1)			$	189,949		$	106,564		Gross margin (1)			$	158,407		$	189,949
Gross margin % (2)	Gross margin % (2)			26.9		%	23.4		%	Gross margin % (2)			29.0		%	26.9		%
Adjusted gross margin (3)	Adjusted gross margin (3)			$	201,433		$	116,117		Adjusted gross margin (3)			$	165,202		$	201,433
Adjusted gross margin % (2)(3)	Adjusted gross margin % (2)(3)			28.5		%	25.5		%	Adjusted gross margin % (2)(3)			30.3		%	28.5		%
EBITDA (4)	EBITDA (4)			$	134,236		$	63,980		EBITDA (4)			$	104,411		$	134,236
EBITDA margin % (2)(4)	EBITDA margin % (2)(4)			19.0		%	14.1		%	EBITDA margin % (2)(4)			19.1		%	19.0		%
Adjusted EBITDA (4)	Adjusted EBITDA (4)			$	134,215		$	63,592		Adjusted EBITDA (4)			$	102,863		$	134,215
Adjusted EBITDA margin % (2)(4)	Adjusted EBITDA margin % (2)(4)			19.0		%	14.0		%	Adjusted EBITDA margin % (2)(4)			18.8		%	19.0		%

(1)Gross margin is home sales revenues less cost of sales.

(2)Calculated as a percentage of home sales revenues.

(3)Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales. Our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin. However, because adjusted gross margin information excludes capitalized interest and purchase accounting adjustments, which have real economic effects and could impact our results, the utility of adjusted gross margin information as a measure of our operating performance may be limited. In addition, other companies may not calculate adjusted gross margin information in the same manner that we do. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance. Please see “—Non-GAAP Measures” for a reconciliation of adjusted gross margin to gross margin, which is the GAAP financial measure that our management believes to be most directly comparable.

(4)EBITDA and adjusted EBITDA are non-GAAP financial measures used by management as supplemental measures in evaluating operating performance. We define EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization and (iv) capitalized interest charged to the cost of sales. We define adjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) capitalized interest charged to the cost of sales, (v) loss on extinguishment of debt, (vi) other income, net and (vii) adjustments resulting from the application of purchase accounting. Our management believes that the presentation of EBITDA and adjusted EBITDA provides useful information to investors regarding our

~~Table of Contents~~

results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of

Table of Contents

our business. EBITDA and adjusted EBITDA provide indicators of general economic performance that are not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization and items considered to be unusual or non-recurring. Accordingly, our management believes that these measures are useful for comparing general operating performance from period to period. Other companies may define these measures differently and, as a result, our measures of EBITDA and adjusted EBITDA may not be directly comparable to the measures of other companies. Although we use EBITDA and adjusted EBITDA as financial measures to assess the performance of our business, the use of these measures is limited because they do not include certain material costs, such as interest and taxes, necessary to operate our business. EBITDA and adjusted EBITDA should be considered in addition to, and not as a substitute for, net income in accordance with GAAP as a measure of performance. Our presentation of EBITDA and adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our use of EBITDA and adjusted EBITDA is limited as an analytical tool, and you should not consider these measures in isolation or as substitutes for analysis of our results as reported under GAAP. Please see “—Non-GAAP Measures” for reconciliations of EBITDA and adjusted EBITDA to net income, which is the GAAP financial measure that our management believes to be most directly comparable.

Table of Contents

Three Months Ended March 31,~~2021~~ 2022 Compared to Three Months Ended March 31, ~~2020~~2021

Homes Sales. Our home sales revenues, home closings, average sales price per home closed (ASP), average community count, average monthly absorption rate and closing community count by reportable segment for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 were as follows (revenues in thousands):

Three Months Ended March 31, 2021 As of March 31, 2021
Revenues Home Closings ASP Average Community Count Average
Monthly
Absorption Rate Community Count at End of Period
Central $ 288,750 1,127 $ 256,211 37.3 10.1 38
Southeast 136,551 548 249,181 27.7 6.6 29
Northwest 118,191 296 399,294 10.6 9.3 11
West 81,148 249 325,896 10.7 7.8 11
Florida 81,313 341 238,455 20.0 5.7 21
Total $ 705,953 2,561 $ 275,655 106.3 8.0 110

Three Months Ended March 31, 2020 As of March 31, 2020
Revenues Home Closings ASP Average Community Count Average
Monthly
Absorption Rate Community Count at End of Period
Central $ 165,775 741 $ 223,718 34.0 7.3 35
Southeast 88,447 403 219,471 31.0 4.3 34
Northwest 101,948 273 373,436 12.3 7.4 12
West 58,485 236 247,818 14.7 5.4 15
Florida 40,072 182 220,176 16.7 3.6 17
Total $ 454,727 1,835 $ 247,808 108.7 5.6 113

Our results of operations for the three months ended March 31, 2021 reflect a significant rebound following the slowdown related to the COVID-19 pandemic that occurred during March and April 2020. Increase in the demand for our homes driven by benefits of homeownership, low interest rates and an undersupply of new and existing homes available for sale have resulted in an 110.8% increase to our backlog net orders at March 31, 2021 as compared to March 31, 2020.


	Three Months Ended March 31, 2022							As of March 31, 2022
	Revenues		Home Closings	ASP		Average Community Count	Average Monthly Absorption Rate	Community Count at End of Period
Central	$	262,298	844	$	310,780	30.0	9.4	29
Southeast	72,463		238	304,466		20.0	4.0	21
Northwest	102,874		201	511,811		10.3	6.5	9
West	55,583		142	391,430		10.0	4.7	10
Florida	52,832		174	303,632		18.7	3.1	19
Total	$	546,050	1,599	$	341,495	89.0	6.0	88


	Three Months Ended March 31, 2021							As of March 31, 2021
	Revenues		Home Closings	ASP		Average Community Count	Average Monthly Absorption Rate	Community Count at End of Period
Central	$	288,750	1,127	$	256,211	37.3	10.1	38
Southeast	136,551		548	249,181		27.7	6.6	29
Northwest	118,191		296	399,294		10.6	9.3	11
West	81,148		249	325,896		10.7	7.8	11
Florida	81,313		341	238,455		20.0	5.7	21
Total	$	705,953	2,561	$	275,655	106.3	8.0	110

Home sales revenues for the three months ended March 31, ~~2021~~2022 were ~~$706.0~~$546.1 million, ~~an increase~~a decrease of ~~$251.2~~$159.9 million, or ~~55.2%~~22.7%, from ~~$454.7~~$706.0 million for the three months ended March 31, ~~2020.~~2021. The ~~increase~~decrease in home sales revenues is primarily due to a ~~39.6% increase~~37.6% decrease in homes closed ~~and~~partially offset by an increase in the average sales price per home closed during the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020.~~2021. The average sales price per home closed during the three months ended March 31, ~~2021~~2022 was ~~$275,655,~~$341,495, an increase of ~~$27,847,~~$65,840, or ~~11.2%~~23.9%, from the average sales price per home closed of ~~$247,808~~$275,655 for the three months ended March 31, ~~2020. This~~2021. The increase in the average sales price per home closed is primarily due to aour ability to pass through cost increases associated with construction in favorable pricing ~~environment, increased closings at~~environments. Additionally, we experienced higher price points in ~~certain markets and changes in product mix.~~all reportable segments. The overall ~~increase~~decrease in home closings ~~was largely due to~~is a ~~strong demand environment leading to higher~~result of lower average ~~monthly~~community count and overall lower absorption ~~rates within certain markets in the Central and Florida reportable segments~~pace during the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020. Our~~2021. The overall decrease in average community count atrelates to timing associated with the opening, close out or transition between certain active communities during the three months ended March 31, ~~2021 decreased~~2022 as compared to ~~110 from 113 at~~the three months ended March 31, ~~2020.~~2021. The overall decrease in absorption relates to increased cycle times that are pandemic related production disruptions. These disruptions have caused varying degrees for supply chain constraints in the markets we serve and have shifted the timing of when we put homes under contract with our customers.

Home sales revenues in our Central reportable segment ~~increased~~decreased by ~~$123.0~~$26.5 million, or ~~74.2%~~9.2%, during the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020,~~2021, primarily due to a ~~52.1% increase~~25.1% decrease in the number of homes closed ~~increased~~driven by a decrease in the average community count at a ~~higher~~slightly lower absorption rate ~~and~~in this reportable segment, partially offset by an increase in the average sales price per home closed. Home sales revenues in our Southeast reportable segment decreased by $64.1 million, or 46.9%, during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to a 56.6% decrease in the number of homes closed driven by a decrease in the average community count at a slightly lower absorption rate in this reportable segment, partially offset by an increase in the average sales price per home closed. Home sales revenues in our Northwest reportable segment decreased by $15.3 million, or 13.0%, during the three months ended March 31, 2022 as compared to the three months ended March 31,

Table of Contents

2021, primarily due to a 32.1% decrease in the number of homes closed driven by a slight decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by a sharp increase in the average sales price per home closed. Home sales revenues in our West reportable segment decreased by $25.6 million, or 31.5%, during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to a 43.0% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by an increase in the average sales price per home closed. Home sales revenues in our Florida reportable segment ~~increased~~decreased by ~~$41.2~~$28.5 million, or ~~102.9%~~35.0%, ~~largely due to an increase in the number of homes closed resulting from an increase in community count and at a higher absorption rate for~~during the three months ended March 31, ~~2021~~2022, as compared to the three months ended March 31, ~~2020. Home sales revenues in our Southeast reportable segment increased by $48.1 million, or 54.4%,~~2021, primarily due to ~~increased home closings at higher average sales price, as well as continued expansion into certain Mid-Atlantic geographic markets. Home sales revenues in our~~

~~Table of Contents~~

~~Northwest reportable segment increased by $16.2 million, or 15.9%, primarily due to increased demand and an increase~~a 49.0% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by the ~~close out~~increase of ~~or transition between, and to a lesser extent available inventory~~27.3% in ~~certain active communities for~~ the three months ended March 31, 2021. Home sales revenues in our West reportable segment increased by $22.7 million, or 38.8%, during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to a 31.5% increase in average sales price per home ~~closed, and the close out of or transition between, and~~closed. Differing absorption rates in our reportable segments was generally related to ~~a lesser extent~~ available ~~inventory in, certain active communities for the three months ended March 31, 2021.~~homes to sell.

Cost of Sales and Gross Margin (home sales revenues less cost of sales). Cost of sales ~~increased~~decreased for the three months ended March 31, ~~2021~~2022 to ~~$516.0~~$387.6 million, ~~an increase~~a decrease of ~~$167.8~~$128.4 million, or ~~48.2%~~24.9%, from ~~$348.2~~$516.0 million for the three months ended March 31, ~~2020,~~2021. This overall decrease is primarily due to ~~the~~a 37.6% decrease in homes closed. The increase in ~~homes closed.~~gross margin as a percentage of home sales revenues during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 was primarily due to raising prices higher than increases in input costs, in addition to lower capitalized interest and lower overhead and lot costs. Gross margin for the three months ended March 31, ~~2021~~2022 was ~~$189.9~~$158.4 million, ~~an increase~~a decrease of ~~$83.4~~$31.5 million, or ~~78.2%~~16.6%, from ~~$106.6~~$189.9 million for the three months ended March 31, ~~2020.~~2021. Gross margin as a percentage of home sales revenues was 29.0% for the three months ended March 31, 2022 and 26.9% for the three months ended March 31, ~~2021 and 23.4% for the three months ended March 31, 2020.~~2021. This increase in gross margin as a percentage of home sales revenues iswas primarily due to ~~an increase~~raising prices higher than increases in ~~homes closed with a higher average sales price per home closed, lower capitalized interest and lower overhead expense, offset by higher lot~~input costs for the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020.~~2021.

Selling Expenses. Selling expenses for the three months ended March 31, ~~2021~~2022 were ~~$42.8~~$34.4 million, ~~an increase~~a decrease of ~~$10.0~~$8.4 million, or ~~30.6%~~19.6%, from ~~$32.8~~$42.8 million for the three months ended March 31, ~~2020.~~2021. Sales commissions ~~increased~~decreased to $20.1 million for the three months ended March 31, 2022 from $26.3 million for the three months ended March 31, 2021, ~~from $16.5 million for the three months ended March 31, 2020, primarily~~partially due to a ~~55.2% increase~~22.7% decrease in home sales revenues during the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020.~~2021. Selling expenses as a percentage of home sales revenues were ~~6.1%~~6.3% and ~~7.2%~~6.1% for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~decrease~~increase in selling expenses as a percentage of home sales revenues ~~reflects operating leverage realized from~~was driven primarily by the ~~increase~~decrease in home sales revenues during the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020.~~2021.

General and Administrative. General and administrative expenses for the three months ended March 31, ~~2021~~2022 were ~~$24.7~~$28.3 million, an increase of ~~$4.8~~$3.6 million, or ~~24.1%~~14.4%, from ~~$19.9~~$24.7 million for the three months ended March 31, ~~2020.~~2021. The increase in the amount of general and administrative expenses is primarily due tohigher overhead and increased ~~personnel and related costs~~headcount in certain departments during the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020.~~2021. General and administrative expenses as a percentage of home sales revenues were ~~3.5%~~5.2% and ~~4.4%~~3.5% for the three months ended March 31, 2022 and 2021, ~~and 2020,~~ respectively. ~~The decrease in general and administrative~~

Other Income. Other income, net of other expenses ~~as a percentage of home sales revenues reflects operating leverage realized from the increase in home sales revenues during~~was $3.8 million for the three months ended March 31, ~~2021 as compared to~~2022, an increase of $3.0 million from $0.8 million for the three months ended March 31, ~~2020.~~2021. The increase in other income primarily reflects the gain realized from sale of land not directly associated with our core homebuilding operations and to a lesser extent other miscellaneous income.

Operating Income and Net Income before Income Taxes. Operating income for the three months ended March 31, ~~2021~~2022 was ~~$122.4~~$95.7 million, ~~an increase~~a decrease of ~~$68.6~~$26.7 million, or ~~127.3%~~21.8%, from ~~$53.9~~$122.4 million for the three months ended March 31, ~~2020.~~2021. Net income before income taxes for the three months ended March 31, ~~2021~~2022 was ~~$123.3~~$99.6 million, ~~an increase~~a decrease of ~~$68.4~~$23.7 million, or ~~124.6%~~19.2%, from ~~$54.9~~$123.3 million for the three months ended March 31, ~~2020. All~~2021. The following reportable segments contributed to net income before income taxes during the three months ended March 31, ~~2021~~2022 as follows: Central - ~~$55.6~~$57.7 million or ~~45.1%~~58.0%; Southeast - ~~$19.8~~$10.1 million or ~~16.1%~~10.2%; Northwest - ~~$26.0~~$27.6 million or ~~21.1%; West - $12.6 or 10.2%~~27.7%; and Florida - ~~$10.8~~$5.4 million or ~~8.8%~~5.4%. Our West reportable segment had a $(0.2) million, or (0.2)%, net loss primarily attributable to an ongoing local tax audit impacting our Arizona markets. The ~~increases~~decreases in operating income and net income before income taxes are primarily attributed to ~~higher gross margins, operating leverage realized from~~ the ~~increase~~decrease in home sales revenues, ~~and~~partially offset by higher average sales price per home closed during the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020.~~2021.

Income Taxes. Income tax provision for the three months ended March 31, ~~2021~~2022 was ~~$23.6~~$20.9 million, ~~an increase~~a decrease of ~~$11.6~~$2.8 million, or ~~96.0%~~11.7%, from income tax provision of ~~$12.1~~$23.6 million for the three months ended March 31, ~~2020.~~2021. The ~~increase~~decrease in the amount of income tax provision is primarily due to the ~~124.6% increase~~19.2% decrease in net income before taxes, ~~partially~~ offset by the ~~decrease~~tax benefits relating to the federal energy efficient homes tax credits that expired in 2021. The increase in our effective tax rate to a21.0% from 19.2% ~~effective tax~~results from an increase in the rate ~~from a 22.0% effective tax rate as a result~~due to the expiration of the tax benefits relating to the federal energy efficient homes tax credits and an increase in the rate for the compensation limitation under Section 162(m) of the Internal Revenue

Table of Contents

Code, as ~~well as~~amended, offset by a decrease in the rate for deductions in excess of compensation cost for share-based payments ~~we recognized~~ for the three months ended March 31, ~~2021.~~2022.

Net Income. Net income for the three months ended March 31, ~~2021~~2022 was ~~$99.7~~$78.7 million, ~~an increase~~a decrease of ~~$56.8~~$21.0 million, or ~~132.6%~~21.0%, from ~~$42.8~~$99.7 million for the three months ended March 31, ~~2020.~~2021. The ~~increase~~decrease in net income is primarily attributed to ~~higher gross margins, operating leverage realized from the increase in home sales revenues,~~overall lower homes closed, offset by higher average sales price per home closed ~~and the federal energy efficient homes tax credits recognized~~at higher gross margins on a per home basis, during the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020.~~2021.

~~Table of Contents~~

Non-GAAP Measures

In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”), we have provided information in this Quarterly Report on Form 10-Q relating to adjusted gross margin, EBITDA and adjusted EBITDA.

Adjusted Gross Margin

Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales. Our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin. However, because adjusted gross margin information excludes capitalized interest and purchase accounting adjustments, which have real economic effects and could impact our results, the utility of adjusted gross margin information as a measure of our operating performance may be limited. In addition, other companies may not calculate adjusted gross margin information in the same manner that we do. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance.

The following table reconciles adjusted gross margin to gross margin, which is the GAAP financial measure that our management believes to be most directly comparable (dollars in thousands):


		Three Months Ended March 31,								Three Months Ended March 31,
			2021			2020					2022			2021
Home sales revenues	Home sales revenues		$	705,953		$	454,727		Home sales revenues		$	546,050		$	705,953
Cost of sales	Cost of sales		516,004			348,163			Cost of sales		387,643			516,004
Gross margin	Gross margin		189,949			106,564			Gross margin		158,407			189,949
Capitalized interest charged to cost of sales	Capitalized interest charged to cost of sales		10,672			8,930			Capitalized interest charged to cost of sales		4,513			10,672
Purchase accounting adjustments (1)	Purchase accounting adjustments (1)		812			623			Purchase accounting adjustments (1)		2,282			812
Adjusted gross margin	Adjusted gross margin		$	201,433		$	116,117		Adjusted gross margin		$	165,202		$	201,433
Gross margin % (2)	Gross margin % (2)		26.9		%	23.4		%	Gross margin % (2)		29.0		%	26.9		%
Adjusted gross margin % (2)	Adjusted gross margin % (2)		28.5		%	25.5		%	Adjusted gross margin % (2)		30.3		%	28.5		%

(1)Adjustments result from the application of purchase accounting for acquisitions and represent the amount of the fair value step-up adjustments included in cost of sales for real estate inventory sold after the acquisition dates.

(2)Calculated as a percentage of home sales revenues.

EBITDA and Adjusted EBITDA

EBITDA and adjusted EBITDA are non-GAAP financial measures used by management as supplemental measures in evaluating operating performance. We define EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization and (iv) capitalized interest charged to the cost of sales. We define adjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) capitalized interest charged to the cost of sales, (v) loss on extinguishment of debt, (vi) other income, net and (vii) adjustments resulting from the application of purchase accounting included in cost of sales. Our management believes that the presentation of EBITDA and adjusted EBITDA provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business. EBITDA and adjusted EBITDA provide indicators of general economic performance that are not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization and items considered to be unusual or non-recurring. Accordingly, our management believes that these measures are useful for comparing general operating performance from period to period. Other companies may define these measures differently and, as a result, our measures of EBITDA and adjusted EBITDA may not be directly comparable to the measures of other companies. Although we use EBITDA and adjusted EBITDA as financial measures to assess the performance of our business, the use of these measures is limited because they do not include certain material costs,

Table of Contents

such as interest and taxes, necessary to operate our business. EBITDA and adjusted EBITDA should be considered in addition to, and not as a substitute for, net income in accordance with GAAP as a measure of performance. Our presentation of EBITDA and adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our use of EBITDA and adjusted EBITDA is limited as an analytical tool, and you should not consider these measures in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are:

~~Table of Contents~~

(i) they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments, including for purchase of land;

(ii) they do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;

(iii) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and EBITDA and adjusted EBITDA do not reflect any cash requirements for such replacements or improvements;

(iv) they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;

(v) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and

(vi) other companies in our industry may calculate them differently than we do, limiting their usefulness as a comparative measure.

Because of these limitations, our EBITDA and adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using our EBITDA and adjusted EBITDA along with other comparative tools, together with GAAP measures, to assist in the evaluation of operating performance. These GAAP measures include operating income, net income and cash flow data. We have significant uses of cash flows, including capital expenditures, interest payments and other non-recurring charges, which are not reflected in our EBITDA or adjusted EBITDA. EBITDA and adjusted EBITDA are not intended as alternatives to net income as indicators of our operating performance, as alternatives to any other measure of performance in conformity with GAAP or as alternatives to cash flows as a measure of liquidity. You should therefore not place undue reliance on our EBITDA or adjusted EBITDA calculated using these measures.

The following table reconciles EBITDA and adjusted EBITDA to net income, which is the GAAP measure that our management believes to be most directly comparable (dollars in thousands):


		Three Months Ended March 31,								Three Months Ended March 31,
			2021			2020					2022			2021
Net income	Net income		$	99,658		$	42,839		Net income		$	78,686		$	99,658
Income tax provision (benefit)	Income tax provision (benefit)		23,618			12,050			Income tax provision (benefit)		20,864			23,618
Depreciation and amortization	Depreciation and amortization		288			161			Depreciation and amortization		348			288
Capitalized interest charged to cost of sales	Capitalized interest charged to cost of sales		10,672			8,930			Capitalized interest charged to cost of sales		4,513			10,672
EBITDA	EBITDA		134,236			63,980			EBITDA		104,411			134,236
Purchase accounting adjustments(1)	Purchase accounting adjustments(1)		812			623			Purchase accounting adjustments(1)		2,282			812

Other income, net	Other income, net		(833)			(1,011)			Other income, net		(3,830)			(833)
Adjusted EBITDA	Adjusted EBITDA		$	134,215		$	63,592		Adjusted EBITDA		$	102,863		$	134,215
EBITDA margin %(2)	EBITDA margin %(2)		19.0		%	14.1		%	EBITDA margin %(2)		19.1		%	19.0		%
Adjusted EBITDA margin %(2)	Adjusted EBITDA margin %(2)		19.0		%	14.0		%	Adjusted EBITDA margin %(2)		18.8		%	19.0		%

(2)Calculated as a percentage of home sales revenues.

Backlog

We sell our homes under standard purchase contracts, which generally require a homebuyer to pay a deposit at the time of signing the purchase contract. The amount of the required deposit is minimal (typically $1,000 to $5,000). We permit our retail homebuyers to cancel the purchase contract and obtain a refund of their deposit in the event mortgage financing cannot be obtained within a certain period of time, as specified in their purchase contract. Typically, our retail homebuyers provide documentation regarding their ability to obtain mortgage financing within 14 days after the purchase contract is signed. If we

Table of Contents

determine that the homebuyer is not qualified to obtain mortgage financing or is not otherwise financially able to purchase the home, we will terminate the purchase contract. If a purchase contract has not been cancelled or terminated within 14 days after the purchase contract has been signed, then the homebuyer has met the preliminary criteria to obtain mortgage financing. Only purchase contracts that are signed by homebuyers who have met the preliminary criteria to obtain mortgage financing are included in new (gross) orders.

~~Table of Contents~~

Our “backlog” consists of homes that are under a purchase contract that has been signed by homebuyers who have met the preliminary criteria to obtain mortgage financing but have not yet closed and wholesale contracts for which vertical construction is generally set to occur within the next six to twelve months. Since our business model is generally based on building move-in ready homes before a purchase contract is signed, the majority of our homes in backlog are currently under construction or complete. Ending backlog represents the number of homes in backlog from the previous period plus the number of net orders (new orders for homes less cancellations) generated during the current period minus the number of homes closed during the current period. Our backlog at any given time will be affected by cancellations, the number of our active communities and the timing of home closings. Homes in backlog are generally closed within one to two months, although home closings have been, and may continue to be, delayed during the COVID-19 pandemic. In addition, we may experience cancellations of purchase contracts at any time prior to closing. It is important to note that net orders, backlog and cancellation metrics are operational, rather than accounting data, and should be used only as a general gauge to evaluate performance. Backlog may be impacted by customer cancellations for various reasons that are beyond our control, and in light of our minimal required deposit, there is little negative impact to the potential homebuyer from the cancellation of the purchase contract.

Our net orders decreased in the first quarter of 2022 primarily due to the availability of finished lots brought on by sustained demand and the rapid pace of fluctuating rising costs for certain supplies and labor experienced in 2021. During the first half of 2021, due to limited supply, we elected to not enter into sales contracts until construction on the home had begun and our costs for the home were readily determined. In the first quarter of 2022, to mitigate continuing cost volatility, we have further modified our traditional timing of when to enter into our sales contracts until later in the construction cycle to align with the dynamic pricing environment.

As of the dates set forth below, our net orders, cancellation rate and ending backlog homes and value were as follows (dollars in thousands):


Backlog Data	Backlog Data	Three Months Ended March 31,						Backlog Data	Three Months Ended March 31,
		2021 (4)			2020 (5)				2022 (4)			2021 (5)
Net orders (1)	Net orders (1)	5,229			2,481			Net orders (1)	1,973			5,229
Cancellation rate (2)	Cancellation rate (2)	10.5		%	18.3		%	Cancellation rate (2)	15.6		%	10.5		%
Ending backlog – homes (3)	Ending backlog – homes (3)	5,632			1,879			Ending backlog – homes (3)	2,429			5,632
Ending backlog – value (3)	Ending backlog – value (3)	$	1,595,879		$	446,271		Ending backlog – value (3)	$	849,117		$	1,595,879

(1)Net orders are new (gross) orders for the purchase of homes during the period, less cancellations of existing purchase contracts during the period.

(2)Cancellation rate for a period is the total number of purchase contracts cancelled during the period divided by the total new (gross) orders for the purchase of homes during the period.

(3)Ending backlog consists of retail homes at the end of the period that are under a purchase contract that has been signed by homebuyers who have met our preliminary financing criteria but have not yet closed and wholesale contracts for which vertical construction is generally set to occur within the next six to twelve months. Ending backlog is valued at the contract amount.

(4)As of March 31, ~~2021,~~2022, we ~~have 1,344~~had 374 units related to bulk sales agreements associated with our wholesale business.

(5)As of March 31, ~~2020,~~2021, we ~~have 338~~had 1,344 units related to bulk sales agreements associated with our wholesale business.

Land Acquisition Policies and Development

We had ~~110~~88 and ~~116~~101 active communities as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The overall decrease in community count is seen as transitory, primarily due to the close out of active communities and to a lesser extent available finished lots in certain active markets. Generally, it takes us two to three years to turn raw or undeveloped land into an active community.

Our lot inventory increased to ~~67,286~~93,270 owned or controlled lots as of March 31, ~~2021~~2022 from ~~61,504~~91,845 owned or controlled lots as of December 31, ~~2020 primarily due to overall increased lot counts within the Southeast, Northwest, West and Florida reportable segments.~~2021.

The table below shows (i) home closings by reportable segment for the three months ended March 31, ~~2021~~2022 and (ii) our owned or controlled lots by reportable segment as of March 31, ~~2021.~~

Three Months Ended March 31, 2021 As of March 31, 2021
Reportable Segment Home Closings
Owned (1)
Controlled Total
Central 1,127 17,639 9,229 26,868
Southeast 548 10,783 8,273 19,056
Northwest 296 3,217 4,052 7,269
West 249 4,199 4,198 8,397
Florida 341 2,664 3,032 5,696
Total 2,561 38,502 28,784 67,286

~~(1)Of the 38,502 owned lots as of March 31, 2021, 26,213 were raw/under development lots and 12,289 were finished lots.~~

2022.

Table of Contents


	Three Months Ended March 31, 2022	As of March 31, 2022
Reportable Segment	Home Closings	Owned (1)	Controlled	Total
Central	844	23,769	13,999	37,768
Southeast	238	15,822	5,620	21,442
Northwest	201	6,790	2,559	9,349
West	142	8,358	7,040	15,398
Florida	174	4,340	4,973	9,313
Total	1,599	59,079	34,191	93,270

(1)Of the 59,079 owned lots as of March 31, 2022, 47,222 were raw/under development lots and 11,857 were finished lots.

Homes in Inventory

When entering a new community, we build a sufficient number of move-in ready homes to meet our budgets. We base future home starts on home closings. As homes are closed, we start more homes to maintain our inventory. As of March 31, ~~2021,~~2022, we had a total of ~~797~~676 completed homes, including information centers, and ~~3,554~~3,762 homes in progress.

Raw Materials and Labor

When constructing homes, we use various materials and components. We generally contract for our materials and labor at a fixed price for the anticipated construction period of our homes. This allows us to mitigate the risks associated with increases in building materials and labor costs between the time construction begins on a home and the time it is closed. Typically, the raw materials and most of the components used in our business are readily available in the United States. In addition, the majority of our raw materials is supplied to us by our subcontractors, and is included in the price of our contract with such subcontractors. Most of the raw materials necessary for our subcontractors are standard items carried by major suppliers. Substantially all of our construction work is done by third-party subcontractors, most of whom are non-unionized. We continue to monitor the supply markets to achieve the best prices available. Typically, the price changes that most significantly influence our operations are price increases in labor, commodities and lumber. For the three months ended March 31, 2022, we have experienced delays in varying degrees in our materials and components. We could see additional cost pressures associated with lumber and other materials in future quarters. Generally, we have been able to increase the sales prices of our homes to absorb these increased costs.

Seasonality

In all of our reportable segments, we have historically experienced similar variability in our results of operations and in capital requirements from quarter to quarter due to the seasonal nature of the homebuilding industry. We generally close more homes in our second, third and fourth quarters. Thus, our revenues may fluctuate on a quarterly basis and we may have higher capital requirements in our second, third and fourth quarters in order to maintain our inventory levels. Our revenues and capital requirements are generally similar across our second, third and fourth quarters.

As a result of seasonal activity, our quarterly results of operations and financial position at the end of a particular quarter, especially the first quarter, are not necessarily representative of the results we expect at year end. We expect this seasonal pattern to continue in the long term.

Liquidity and Capital Resources

Overview

As of March 31, ~~2021,~~2022, we had ~~$48.2~~$53.3 million of cash and cash equivalents. Cash flows for each of our active communities depend on the status of the development cycle and can differ substantially from reported earnings.

Our principal uses of capital are operating expenses, land and lot purchases, lot development, home construction, interest costs on our indebtedness and the payment of various liabilities. In addition, we may purchase land, lots, homes under construction or other assets as part of an acquisition and repurchase share of our common stock. Early stages of development or expansion require significant cash outlays for land acquisitions, land development, plats, vertical development, construction of information centers, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes, we incur significant cash outflows prior to recognition of home sales revenues. In the later stages of an active community, cash inflows may exceed home sales revenues reported for financial statement purposes, as the costs associated with home and land construction were previously incurred.

~~Our principal uses~~

Table of ~~capital are operating expenses, land~~Contents

Short-term Liquidity and lot purchases, lot development, home construction, interest costs on our indebtedness and the payment of various liabilities. In addition, we may purchase land, lots, homes under construction or other assets as part of an acquisition.Capital Resources

We generally rely on our ability to finance our operations by generating operating cash flows and borrowing under the Credit Agreement (as defined below) ~~or the issuance~~to adequately fund our short-term working capital obligations and ~~sale of~~to purchase land and other assets, develop lots and homes and repurchase shares of our common stock. As needed, we will consider accessing the debt and equity capital markets as part of our ongoing financing strategy. We also rely on our ability to obtain performance, payment and completion surety bonds as well as letters of credit to finance our projects.

We have an effective shelf registration statement on Form S-3 (Registration No. 333-227012) that was filed on August 24, 2018 with the Securities and Exchange Commission, registering the offering and sale of an indeterminate amount of debt securities, guarantees of debt securities, preferred stock, common stock, warrants, depositary shares, purchase contracts and units that include any of these securities. Under the shelf registration statement, we have the ability to access the debt and equity capital markets as needed as part of our ongoing financing strategy.

As of the date of this Quarterly Report on Form 10-Q, we believe that we will be able to fund our current and foreseeable liquidity needs for at least the next twelve months with our cash on hand, cash generated from operations and cash expected to be available from the Credit Agreement or through accessing debt or equity capital, as needed. However, with the uncertainty surrounding COVID-19, our ability to engage in the transactions described above may be constrained by volatile or tight economic, capital, credit and financial market conditions, as well as moderated investor or lender interest or capacity and our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions.

Long-term Liquidity and Capital Resources

~~Table~~We believe that our long-term principal uses of ~~Contents~~

liquidity and capital resources will be inventory related purchases concerning land, lot development, repurchase shares of our common stock, other capital expenditures, and principal and interest payments on our debt obligations maturing in 2025 and 2029. We believe that we will be able to fund our long-term liquidity needs with cash generated from operations and cash expected to be available to borrow under the Credit Agreement or through accessing debt or equity capital, as needed, although no assurance can be provided that such additional debt or equity capital will be available when needed or on terms that we find attractive. To the extent these sources of capital are insufficient to meet our needs, we may also conduct additional public or private offerings of our securities, refinance our indebtedness, or dispose of certain assets to fund our operating activities and capital needs.

Revolving Credit Facility

On April ~~30, 2020,~~29, 2022, we entered into the Second Amendment to Fourth Amended and Restated Credit Agreement (the “Second Amendment”), which amends the Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended by thethat certain Lender Addition and Acknowledgement Agreement and ~~First~~Second Amendment to Fourth Amended and Restated Credit Agreement, dated as of December 6, 2019, the “2019 Credit Agreement” and, together with the Second Amendment, the “2020 Credit Agreement”), with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent. In the Second Amendment, certain lenders agreed to extend the maturity of their commitments, while another lender agreed to extend the maturity of its commitment subsequent to the execution of the Second Amendment. Lenders with $566.0 million, or 87%, of the $650.0 million of commitments under the 2019 Credit Agreement agreed to extend the maturity of their commitments to May 31, 2023, with the remaining lenders retaining their existing maturity of May 31, 2022. The Second Amendment also reduced the minimum EBITDA to interest expense ratio from 2.50 to 1.75, increased the sublimit for letters of credit to $40.0 million and established a London Interbank Offered Rate (“LIBOR”) floor of 0.70%. The 2020 Credit Agreement otherwise has substantially similar terms and provisions to the 2019 Credit Agreement and continues to provide for a $650.0 million revolving credit facility, which can be increased at the request of the Company by up to $100.0 million, subject to the terms and conditions of the 2020 Credit Agreement.

The 2020 Credit Agreement requires us to maintain (i) a tangible net worth of not less than $625.0 million plus 75% of the net proceeds of all equity issuances plus 50.0% of the amount of our positive net income in any fiscal quarter after December 31, 2019, (ii) a leverage ratio of not greater than 60.0%, (iii) liquidity of at least $50.0 million and (iv) a ratio of EBITDA to interest expense for the most recent four quarters of at least 1.75 to 1.00. The 2020 Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments. At March 31, 2021, we were in compliance with all of the covenants contained in the 2020 Credit Agreement.

In July 2017, the Financial Conduct Authority in the United Kingdom, which regulates LIBOR, announced that it intends to phase out LIBOR as a benchmark by the end of 2021. At the present time, the Credit Agreement has a term that extends beyond 2021, and borrowings under the Credit Agreement bear interest at LIBOR plus an applicable margin. The Credit Agreement provides for a mechanism to amend the Credit Agreement to reflect the establishment of an alternate rate of interest upon the occurrence of certain events related to the phase-out of any applicable interest rate. However, we have not yet pursued any technical amendment or other contractual alternative to address this matter. We are currently evaluating the potential impact of the eventual replacement of the LIBOR interest rate on the Credit Agreement.

~~On April 28, 2021, we entered into that certain~~ Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the ~~“Credit Agreement”~~“Second Amendment”), which ~~amends~~amended that certain Fifth Amended and ~~restates~~Restated Credit Agreement, dated as of April 28, 2021, with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “2021 Credit Agreement” and, as so amended and as otherwise amended prior to the ~~2020 Credit Agreement.~~date of the Second Amendment, the “Credit Agreement”). The Credit Agreement ~~(a) increases the~~contains revolving commitments of $1.1 billion, subject to ~~$850.0 million, (b) allows~~a borrowing base primarily consisting of a percentage of commercial land, land held for development, lots under development and finished lots held by the Company ~~to increase~~and its subsidiaries that guarantee the ~~commitments by up to $100.0 million, subject to terms and conditions, (c) extends~~obligations under the ~~maturity to~~Credit Agreement.

The Credit Agreement matures on April 28, ~~2025 for all lenders, (d) increases~~2025. Before each anniversary of the ~~sublimit for~~Credit Agreement, we may request a one-year extension of its maturity date. The 2021 Credit Agreement is guaranteed by, among others, each of our subsidiaries that have gross assets of at least $0.5 million.

The borrowings and letters of credit ~~to $50.0 million, (e) adds unrestricted cash in excess~~outstanding under the Credit Agreement, together with the outstanding principal balance of ~~$10.0 million as a component of~~our 4.000% Senior Notes due 2029 (the “2029 Senior Notes”), may not exceed the borrowing base ~~and removes certain exclusions from~~under the Credit Agreement. As of March 31, 2022, the borrowing base ~~(f) reduces~~under the ~~applicable margin for LIBOR loans~~2021 Credit Agreement was $1.1 billion, of which borrowings, including the 2029 Senior Notes, of $1.0 billion were outstanding, $25.0 million of letters of credit were outstanding and $108.3 million was available to borrow under the 2021 Credit Agreement.

For a ~~range~~further description of 2.10% to 1.45%, based on our leverage ratio, (g) reduces the LIBOR floor to 0.50%, (h) increases the minimum tangible net worth requirement to $850.0 million plus 75% of the net proceeds of equity issuances after December 31, 2020 and 50% of consolidated earnings for each quarter ending after March 31, 2021 and (i) provides for a “hardwired” transition from LIBOR loan pricing that is intended to be economically neutral to the Company; otherwise, the Credit Agreement, isplease refer to Note 4, “Notes Payable” to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on ~~substantially the same terms as the 2020 Credit Agreement.~~Form 10-Q.

Senior Notes Offering

~~Table of Contents~~

Regulation S under the Securities Act. Interest on the 2029 Senior Notes accrues at a rate of ~~6.875%~~4.000% per annum, payable semi-annually in arrears on January 15 and July 15 of each ~~year, commencing on January 15, 2019, and the~~year. The 2029 Senior Notes mature on July 15, ~~2026.~~2029. Terms of the 2029 Senior Notes are governed by an Indenture, ~~and First Supplemental Indenture thereto, each~~ dated as of July 6, 2018, and ~~a Second~~Third Supplemental Indenture thereto, dated as of ~~April 30, 2020,~~June 28, 2021, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the ~~2020~~ Credit Agreement and Wilmington Trust, National Association, as trustee.

Letters of Credit, Surety Bonds and Financial Guarantees

Table of Contents

We are often required to provide letters of credit and surety bonds to secure our performance under construction contracts, development agreements and other arrangements. The amount of such obligations outstanding at any time varies in accordance with our pending development activities. In the event any such bonds or letters of credit are drawn upon, we would be obligated to reimburse the issuer of such bonds or letters of credit.

Under these letters of credit, surety bonds and financial guarantees, we are committed to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit, surety bonds and financial guarantees under these arrangements, totaled ~~$167.6~~$268.8 million as of March 31, ~~2021.~~2022. Although significant development and construction activities have been completed related to the improvements at these sites, the letters of credit and surety bonds are not generally released until all development and construction activities are completed. We do not believe that it is probable that any outstanding letters of credit, surety bonds or financial guarantees as of March 31, ~~2021~~2022 will be drawn upon.

Stock Repurchase Program

In ~~November 2018, we announced that~~February 2022, our Board of Directors (the “Board”) approved a $200.0 million increase to our previously authorized a stock repurchase program, pursuant to which we may purchase up to ~~$50.0~~$550.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws. ~~In October 2020, the Board approved an increase in our stock repurchase program by an additional $300.0 million.~~ During the three months ended March 31, ~~2021 and 2020,~~2022, we repurchased ~~216,221 and 567,028~~475,055 shares of our common stock for ~~$25.8~~$57.7 million ~~and $31.3 million, respectively,~~ to be held as treasury stock. A total of ~~757,993~~2,521,611 shares of our common stock has been repurchased since our stock repurchase program commenced. As of March 31, ~~2021,~~2022, we may purchase up to ~~$274.6~~$249.0 million of shares of our common stock under our stock repurchase program. The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements. Our stock repurchase program may be modified, discontinued or suspended at any time.

Cash Flows

Operating Activities

Net cash used in operating activities was $137.8 million for the three months ended March 31, 2022. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development. Net cash used in operating activities during the three months ended March 31, 2022 was primarily driven by cash outflow from the $251.6 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and partially offset by net income of $78.7 million, as well as the $9.4 million and $10.5 million increase in the net change in accounts receivable and accrued expenses and other liabilities, respectively.

Net cash provided by operating activities was $160.7 million for the three months ended March 31, 2021. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development. Net cash provided by operating activities during the three months ended March 31, 2021 was primarily driven by net income of $99.7 million,and included cash outflow from the $41.7 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and a $56.7 million and $27.9 million increase in the net change in accounts ~~receivable.~~receivable and accounts payable.

Investing Activities

Net cash ~~provided by operating~~used in investing activities was ~~$58.8~~$1.4 million for the three months ended March 31, ~~2020. The primary drivers~~2022, primarily due to the purchase of ~~operating cash flows are typically cash earnings~~property and ~~changes~~equipment and additional investment in inventory levels, including land acquisition and development. Net cash provided by operating activities during the three months ended March 31, 2020 was primarily driven by net income of $42.8 million,and included cash inflow from the $17.9 million decrease in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity offset by changes in non-inventory balances of $1.9 million.

~~Investing Activities~~unconsolidated entities.

Net cash provided by investing activities was $0.4 million for the three months ended March 31, 2021, primarily due to the return of capital with our investment in an unconsolidated entity, offset by the purchase of property and ~~equipment.~~equipment, as well as an additional investment in an unconsolidated entity.

Financing Activities

Net cash ~~used in investing~~provided by financing activities was ~~$1.5~~$142.0 million for the three months ended March 31, ~~2020,~~2022, primarily ~~due~~driven by $197.6 million of borrowings under the 2021 Credit Agreement, offset by the $57.7 million payment for shares of our common stock repurchased under our stock repurchase program to ~~the additional investment in an unconsolidated entity and purchase of property and equipment.~~

~~Table of Contents~~

~~Financing Activities~~be held as treasury stock.

Net cash used in financing activities was $148.9 million for the three months ended March 31, 2021, primarily driven by $230.0 million of payments on the ~~2020~~Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended, the “2020 Credit Agreement”) and by the $25.8 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock, offset by borrowings of $104.8 million under the 2020 Credit Agreement.

~~Net cash provided by financing activities was $22.6 million for the three months ended March 31, 2020, primarily driven by borrowings~~

Table of $128.1 million under the 2019 Credit Agreement, offset by $75.0 million of payments on the 2019 Credit Agreement and by the $31.3 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock.Contents

~~Off-Balance Sheet Arrangements~~

In the ordinary course of business, we enter into land purchase contracts in order to procure land and lots for the construction of our homes. We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These contracts typically require cash deposits and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, which may include obtaining applicable property and development entitlements or the completion of development activities and the delivery of finished lots. We also utilize contracts with land sellers as a method of acquiring lots and land in staged takedowns, which helps us manage the financial and market risk associated with land holdings and minimize the use of funds from our corporate financing sources. Such contracts generally require a non-refundable deposit for the right to acquire land or lots over a specified period of time at pre-determined prices. We generally have the right at our discretion to terminate our obligations under purchase contracts during the initial feasibility period and receive a refund of our deposit, or we may terminate the contracts after the end of the feasibility period by forfeiting our cash deposit with no further financial obligations to the land seller. In addition, our deposit may also be refundable if the land seller does not satisfy all conditions precedent in the respective contract. As of March 31, 2021, we had $35.5 million of cash deposits pertaining to land purchase contracts for 28,784 lots with an aggregate purchase price of $728.1 million. Approximately $25.1 million of the cash deposits as of March 31, 2021 are secured by third-party guarantees or indemnity mortgages on the related property.

Our utilization of land purchase contracts is dependent on, among other things, the availability of land sellers willing to enter into contracts at acceptable terms, which may include option takedown arrangements, the availability of capital to financial intermediaries to finance the development of optioned lots, general housing conditions and local market dynamics. Land purchase contracts may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain markets.

Inflation

Our business can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs. In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers. During the three months ended March 31, 2022, we have experienced a significant increase in land, labor, materials and construction costs, which we currently expect to continue for the foreseeable future. Generally, we have been able to increase the sales prices of our homes to absorb such increased costs. See “Industry and Economic Risks—Inflation could adversely affect our business and financial results” in Item 1A. Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

~~Contractual Obligations~~Material Cash Requirements

As of March 31, ~~2021,~~2022, there have been no material changes to our known contractual and other obligations appearing in the ~~“Contractual Obligations”~~“Material Cash Requirements” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. On an ongoing basis, management evaluates such estimates and judgments and makes adjustments as deemed necessary. Actual results could differ from these estimates using different estimates and assumptions, or if conditions are significantly different in the future.

We believe that there have been no significant changes to our critical accounting policies and estimates during the three months ended March 31, ~~2021~~2022 as compared to those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021.

~~Table of Contents~~

Cautionary Statement about Forward-Looking Statements

From time to time we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. You can generally identify our forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “will” or other similar words.

We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about future events may, and often do, vary materially from actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements.

The following are some of the factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements:

•adverse economic changes either nationally or in the markets in which we operate, including, among other things, potential impacts from political uncertainty, civil unrest, increases in unemployment, volatility of mortgage interest rates, supply chain disruptions (including due to the conflict in Ukraine and the wide-ranging sanctions the United States and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials) and inflation and decreases in housing prices;

•the impact of the COVID-19 pandemic and its effect on us, our business, customers, subcontractors and suppliers (including associated supply chain disruptions), and the markets in which we operate, U.S. and world financial markets, mortgage availability, potential regulatory actions, changes in customer and stakeholder behaviors and impacts on and modifications to our operations, business and financial condition relating to COVID-19;

•a slowdown in the homebuilding industry or changes in population growth rates in our markets;

•volatility and uncertainty in the credit markets and broader financial markets;

•disruption in the terms or availability of mortgage financing or increase in the number of foreclosures in our markets;

•the cyclical and seasonal nature of our business;

Table of Contents

•our future operating results and financial condition;

•our business operations;

•changes in our business and investment strategy;

•the success of our operations in recently opened new markets and our ability to expand into additional new markets;

•our ability to successfully extend our business model to building homes with higher price points, developing larger communities and producing and selling multi-unit products, townhouses, wholesale products, and acreage home sites;

•our ability to develop our projects successfully or within expected timeframes;

•our ability to identify potential acquisition targets, close such acquisitions and realize the benefits of such acquisitions;

•our ability to successfully integrate any acquisitions with our existing operations;

•availability of land to acquire and our ability to acquire such land on favorable terms or at all;

•availability, terms and deployment of capital and ability to meet our ongoing liquidity needs;

•decisions of the Credit Agreement lender group;

•decline in the market value of our land portfolio;

•shortages of or increased prices for labor, land, or raw materials used in land development and housing construction, including due to changes in trade policies;

•delays in land development or home construction resulting from natural disasters, adverse weather conditions or other events outside our control;

•uninsured losses in excess of insurance limits;

•the cost and availability of insurance and surety bonds;

•changes in, ~~(including as a result of the change in the U.S. presidential administration),~~ liabilities under, or the failure or inability to comply with, governmental laws and regulations, including environmental laws and regulations;

•the timing of receipt of regulatory approvals and the opening of projects;

•the degree and nature of our competition;

•increases in taxes or government fees;

•our continued ability to qualify for additional federal energy efficient homes tax credits and the extension of the availability of such tax credits beyond December 31, 2021;

~~Table of Contents~~•

information system failures, cyber incidents or breaches in security;

•negative publicity or poor relations with the residents of our projects;

•existing and future litigation, arbitration or other claims;

•availability of qualified personnel and third-party contractors and subcontractors;

•~~information system failures, cyber incidents or breaches in security;~~

•our ability to retain our key personnel;

•our leverage and future debt service obligations;

•the impact on our business of any future government shutdown;

•other risks and uncertainties inherent in our business;

•other factors we discuss under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; and

•the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021.

You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Quarterly Report on Form 10-Q.

3231

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our operations are interest rate sensitive. As overall housing demand is adversely affected by increases in interest rates, a significant increase in mortgage interest rates may negatively affect the ability of homebuyers to secure adequate financing. Higher interest rates could adversely affect our revenues, gross margin and net income. ~~We do not enter into, or intend to enter into, derivative financial instruments for trading or speculative purposes.~~

Quantitative and Qualitative Disclosures About Interest Rate Risk

We utilize both fixed-rate debt ($300.0 million aggregate principal amount of the 2029 Senior Notes and certain inventory related obligations) and variable-rate debt (our ~~$850.0 million~~$1.1 billion Credit Agreement) as part of financing our operations. We do not have the obligation to prepay the 2029 Senior Notes or our fixed-rate inventory related obligations prior to maturity, and, as a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed-rate debt.

We are exposed to market risks related to fluctuations in interest rates on our outstanding variable rate indebtedness. In November 2020, we entered into a three-year interest rate cap of LIBOR of 0.70% to hedge a portion of our ~~2020~~ Credit Agreement risk exposure and future variable cash flows associated with LIBOR interest rates. We have not entered into and currently do not hold derivatives for trading or speculative purposes, but we may do so in the future. Many of the statements contained in this section are forward looking and should be read in conjunction with our disclosures under the heading “Cautionary Statement about Forward-Looking Statements” above.

As of March 31, ~~2021,~~2022, we had ~~$121.5~~$715.1 million of variable rate indebtedness outstanding under the ~~2020~~2021 Credit Agreement. All of the outstanding borrowings under the ~~2020~~2021 Credit Agreement were at variable rates based on LIBOR, and all of the outstanding borrowings under the Credit Agreement are at variable rates based on ~~LIBOR.~~SOFR. The interest rate for our variable rate indebtedness as of March 31, ~~2021~~2022 was LIBOR plus ~~2.35%~~1.60%. At March 31, ~~2021,~~2022, LIBOR was ~~0.11%~~0.40%, subject to the ~~0.70%~~0.50% LIBOR floor as included in the ~~2020~~2021 Credit Agreement. A hypothetical 100 basis point increase in the average interest rate above the LIBOR floor on our variable rate indebtedness would increase our annual interest cost by approximately ~~$1.2~~$7.2 million.

Based on the current interest rate management policies we have in place with respect to our outstanding indebtedness, we do not believe that the future interest rate risks related to our existing indebtedness will have a material adverse impact on our financial position, results of operations or liquidity.

3332

Table of Contents

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, ~~2021.~~2022. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure information is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management’s override of controls.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Changes in Internal Controls

No change in our internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f) occurred during the three months ended March 31, ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

3433

Table of Contents

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table summarizes the repurchase of shares of our common stock during the three months ended March 31, ~~2021.~~2022.

Period Total Number of Shares Purchased Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)
(in thousands)
January 1-31, 2021 — $ — — $ 300,412
February 1-28, 2021 — $ — — $ 300,412
March 1-31, 2021 216,221 $ 119.45 216,221 $ 274,585
216,221 $ 119.45 216,221


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1) (in thousands)
January 1-31, 2022	—	$	—	—	$	106,630
February 1-28, 2022	108,314	$	121.87	108,314	$	293,430
March 1-31, 2022	366,741	$	121.23	366,741	$	248,971
	475,055	$	121.37	475,055

(1)In ~~November 2018,~~February 2022, the Board approved a $200.0 million increase to our ~~Board of Directors (the “Board”)~~previously authorized a stock repurchase program, pursuant to which we may purchase up to ~~$50.0~~$550.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws. ~~On October 30, 2020, the Board approved an increase in our stock repurchase program by an additional $300.0 million of shares of our common stock.~~ The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements. Our stock repurchase program may be modified, discontinued or suspended at any time.

~~ITEM 5. OTHER INFORMATION~~

~~Amendment and Restatement of 2020 Credit Agreement~~

On April 28, 2021, we entered into the Credit Agreement, which amends and restates the 2020 Credit Agreement. The Credit Agreement (a) increases the commitments to $850.0 million, (b) allows the Company to increase the commitments by up to $100.0 million, subject to terms and conditions, (c) extends the maturity to April 28, 2025 for all lenders, (d) increases the sublimit for letters of credit to $50.0 million, (e) adds unrestricted cash in excess of $10.0 million as a component of the borrowing base and removes certain exclusions from the borrowing base, (f) reduces the applicable margin for LIBOR loans to a range of 2.10% to 1.45%, based on our leverage ratio, (g) reduces the LIBOR floor to 0.50%, (h) increases the minimum tangible net worth requirement to $850.0 million plus 75% of the net proceeds of equity issuances after December 31, 2020 and 50% of consolidated earnings for each quarter ending after March 31, 2021 and (i) provides for a “hardwired” transition from LIBOR loan pricing that is intended to be economically neutral to the Company; otherwise, the Credit Agreement is on substantially the same terms as the 2020 Credit Agreement.

~~ITEM 6. EXHIBITS~~

Table of Contents

ITEM 6. EXHIBITS


Exhibit No.						Description
3.1**						Certificate of Incorporation of LGI Homes, Inc. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (File No. 33-190853) of LGI Homes, Inc. filed with the SEC on August 28, 2013).
3.2**						Bylaws of LGI Homes, Inc. (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (File No. 333-190853) of LGI Homes, Inc. filed with the SEC on August 28, 2013).
10.1*						First Amendment to Fifth Amended and Restated Credit Agreement, dated as of February 22, 2022, by and among LGI Homes, Inc., each of the financial institutions initially a signatory thereto, and Wells Fargo Bank, National Association, as administrative agent.
10.2*						Lender Addition and Acknowledgement Agreement and Second Amendment to Fifth Amended and Restated Credit Agreement, dated as of April 28 ~~, 2021,~~29, 2022, by and among LGI Homes, Inc., each of the financial institutions initially a signatory thereto, and Wells Fargo Bank, National Association, as administrative agent.
31.1*						CEO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						CFO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*						Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*						Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS†						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH†						Inline XBRL Taxonomy Extension Schema Document.
101.CAL†						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF†						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB†						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE†						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104†						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


*			Filed herewith.
**			Previously filed.


†			XBRL information is deemed not filed or a part of a registration statement or Annual Report for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under such sections.

3635

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		LGI Homes, Inc.

Date:	May ~~4, 2021~~3, 2022	/s/ Eric Lipar
		Eric Lipar
		Chief Executive Officer and Chairman of the Board

	May ~~4, 2021~~3, 2022	/s/ Charles Merdian
		Charles Merdian
		Chief Financial Officer and Treasurer

3736




BALANCE—December 31, 2019	26,398,409	$	264	$	252,603	$	610,382	$	(18,056)	$	845,193
Net income	—	—		—		42,839		—		42,839
Restricted stock units granted for accrued annual bonuses	—	—		222		—		—		222
Stock repurchase	—	—		—		—		(31,335)		(31,335)
Compensation expense for equity awards	—	—		1,853		—		—		1,853
Stock issued under employee incentive plans	282,065	2		831		—		—		833
BALANCE— March 31, 2020	26,680,474	$	266	$	255,509	$	653,221	$	(49,391)	$	859,605


	March 31, 2021		December 31, 2020
Notes payable under the 2020 Credit Agreement ($650.0 million revolving credit facility at March 31, 2021) maturing in part on May 31, 2022 and in part on May 31, 2023; interest paid monthly at LIBOR plus 2.35%; net of debt issuance costs of approximately $4.4 million and $4.9 million at March 31, 2021 and December 31, 2020, respectively	$	117,107	$	241,717
6.875% Senior Notes due July 15, 2026; interest paid semi-annually at 6.875%; net of debt issuance costs of approximately $1.8 million and $1.9 million at March 31, 2021 and December 31, 2020, respectively; and approximately $1.4 million in unamortized discount at March 31, 2021 and December 31, 2020.	296,841		296,681
Total notes payable	$	413,948	$	538,398


	Three Months Ended March 31, 2020							As of March 31, 2020
	Revenues		Home Closings	ASP		Average Community Count	Average Monthly Absorption Rate	Community Count at End of Period
Central	$	165,775	741	$	223,718	34.0	7.3	35
Southeast	88,447		403	219,471		31.0	4.3	34
Northwest	101,948		273	373,436		12.3	7.4	12
West	58,485		236	247,818		14.7	5.4	15
Florida	40,072		182	220,176		16.7	3.6	17
Total	$	454,727	1,835	$	247,808	108.7	5.6	113